Syndicated lending in Asia Pacific, excluding Japan, dropped 6.4% to an eight-year low of US$434.35bn in 2020, compared with US$464.24bn raised in 2019, as the global economy suffered from the onslaught of the coronavirus pandemic.
The number of loans completed in 2020 totalled 1,288, a 2.9% drop from the 1,327 transactions a year earlier.
“The loan markets faced multiple headwinds in 2020, including the pandemic, geopolitical tensions and an active bond market given the significant reduction in interest rates,” said Ashish Sharma, head of loan syndications, Asia Pacific at HSBC.
“Despite these headwinds, the Asia Pacific loan market remained resilient – overall, banks followed a disciplined approach towards client and deal selection, and borrowers were also flexible in approaching the market.”
Market volatility from Covid-19 prompted banks to pull back in the first half of 2020 while they focused on managing their own portfolios and supporting existing clients. Refinancing accounted for a hefty US$187.85bn, or 43.2% of the total syndicated loan volumes in 2020.
Although banks resumed new lending in the second half, views on credit risks remained polarised.
“Syndications for Covid-resilient sectors such as healthcare, infrastructure services and technology, media and telecom have received strong demand from the banks,” said Andrew Ashman, head of loan syndicate for Asia Pacific at Barclays.
“Any credit that is materially impacted by Covid, such as those in the travel, hospitality or discretionary retail sectors will experience a challenging syndication. These credits will likely require structural enhancements and premium pricing to clear the market.”
M&A boost
Among the major loan markets in the region, Hong Kong and Singapore were the worst hit in 2020, tumbling 25.4% and 24.8% year-on-year to US$102.56bn and US$34.33bn, respectively.
Australia’s loan market registered a marginal 1.8% year-on-year increase to US$77.32bn with a handful of high-profile and sizable transactions, including a A$1.85bn (US$1.35bn) five-year financing for Australia-listed NEXTDC and a popular debut A$1.4bn sustainability-linked facility for Downer EDI.
“For the most part lenders seem to be comfortable with the plans borrowers have put in place to best weather ongoing Covid-related issues,” said Peter Graf, head of leveraged finance at Credit Suisse Australia in Sydney. “The recent wave of new transactions has included large underwritten refinancings, corporate and financial sponsor acquisition financings and even select dividend recapitalisations.”
Amid all the gloom, Thailand stood out as a bright spot with its offshore loan volumes quadrupling year-on-year to US$6.27bn in 2020, thanks largely to a mammoth bridge loan backing Thai conglomerate Charoen Pokphand Group’s purchase of British supermarket chain Tesco's Asian business.
Similarly, India outperformed in 2020, rising 30.9% year-on-year to US$23.81bn thanks to a few leveraged buyout transactions that emerged in the third quarter of the year. In November, Baring Private Equity Asia signed a US$600m five-year amortising loan for IT solutions provider Hexaware Technologies, while private equity firm KKR closed a US$169.9m five-year loan to support its acquisition of a majority stake in Indian pharmaceutical company JB Chemicals & Pharmaceuticals.
Indonesia also closed the year in positive territory with its loan volumes rising 10.2% year-on-year to US$13.22bn. The increase was mainly due to instant noodle manufacturer Indofood Sukses Makmur’s jumbo US$2.05bn dual-tranche financing to fund the acquisition of its manufacturing partner Pinehill.
The large event-driven deals from unexpected areas such as Thailand and Indonesia helped prop up M&A lending in Asia to US$52.81bn in 2020, a 24% increase over the US$35.25bn raised in 2019, even as the pandemic led to restrictions on travel and deal-making activity.
Brighter outlook
Bankers expect a more promising start to 2021 after an unprecedented 2020, especially for event-driven financings as the containment of the coronavirus looks more likely, geopolitical factors become less pronounced and base rates remain low.
“We expect Asia to have a relatively faster recovery than other regions and that should bode well for economic activity, which in turn will lead to more activity on the loan front as well, both across event driven and corporate financings,” said HSBC’s Sharma. “We are already seeing enhanced level of event driven activity right now with the sponsors, which started towards the end of the third quarter, especially in markets like Australia and India.”
Ashman from Barclays expects a backlog of event-driven deals from across South-East Asia, India and Australia to return in 2021 and require financing in the loan market.
“The strong corporate governance regimes demanded by private equity sponsors combined with attractive yields is helping drive market appetite for leveraged finance,” he added.
For example, Blackstone Group LP is in talks with banks for an LBO loan of around US$300m–$400m to purchase a controlling stake in Indian conglomerate Piramal Group’s glass packaging unit, while online travel firm Trip.com Group Ltd has revived talks with strategic investors to fund a potential delisting from the Nasdaq, paving the way for what would be a record buyout of a US-listed Chinese company.
(Additional reporting by Mariko Ishikawa and Evelynn Lin)