Q: What are your sentiments on the syndicated loan markets in Asia this year?
A: It will be a demanding year. The growth last year came primarily from the Japanese market. The Asian loan market last year came to almost $200 billion and Japan contributed to almost $80 billion. My view is that this year, we will do better than $200 billion. I would expect a growth of about 10-15%.
Q: Why?
A: For a variety of reasons. The Japanese market is and will be presenting a lot of interesting opportunities. We are seeing a lot of loan maturity in the Asian market and therefore a lot of refinancing. For example, we saw the PCCW deal take place last year. We are seeing various acquisitions happen. So I am optimistic about the volume growth this year.
Q: What will be the most active countries?
A: The key countries would start with Japan, then I would say Hong Kong, where a lot of refinancing is being done because of the pricing being where it is. It makes sense to refinance now those transactions that weren't already refinanced a few months ago. I would expect Hong Kong to be very active. The key names in the Hong Kong market, like the Hong Kong Airport Authority, have already got a decent amount of money because of attractive pricing. You've seen Hong Kong Mortgage Corporation very recently mandating a bank. And we are seeing names like MTRC looking for funds. So Hong Kong will be chipping in a very decent share of the market. And then there will be other countries like Singapore, and Korea chipping in their amounts as well.
Q: As for industries?
A: Telecoms: despite the meltdown in Europe and the challenges globally, Asian has not seen too many deals in that sector except for PCCW. But we do expect the 3G auctions to take place. Obviously the amounts will be smaller, compared to what we have seen in Europe and globally. But we will see activity again in the 3G sectors in Hong Kong, Korea, and so forth.
Q: PCCW, was that a one-off large deal for Asia?
A: I think there is more to come. PCCW was a $9 billion deal, very large from an Asian standard.
Q: And where do you think these large deals are likely to come from?
A: Could be Australia, Japan, Korea, Hong Kong and maybe even the Philippines, as they are borrowing on the sovereign side. These countries I predict will be the volume providers.
Q: You mentioned that Japanese banks have been very active, what impact has that had on pricing?
A: The Japanese banks have large liquidity and balance sheets. They are undergoing consolidation at the moment and 31 March will be a key date for them. They have been very keenly buying assets and keeping them very busy. As a result in the last six months, the pricing in the Asian market has gone down quite a bit for the blue chip names. Very, very attractive pricing, look at Korea and Malaysia, countries like that can borrow at very attractive cost largely because of Japanese liquidity.
Q: That must make things tough for banks like yourself.
A: It does, however, there are a lot of challenges on the Japanese side as well, going forward. Liquidity in the yen market is likely to remain strong - we have seen the Japan sovereign downgrade - and we have seen Japanese banks downgraded or put on a credit watch as of yesterday by Fitch. So we will see a Japanese premium creeping back for the funding. It will be interesting to see how that pans out. The challenges in the Japanese market will be great, but we do not expect any troubles with yen liquidity. None whatsoever. It remains to be seen how aggressive the Japanese banks will remain in the Asian market.
Q: Does this liquidity within the Japanese banks mean that they are taking on loans indiscriminately?
A: I wouldn't generalize that is only a Japanese bank phenomenon. It could happen to any bank with surplus liquidity - they would be forced to take on more business. The Japanese banks have been quite smart about it and have used their liquidity effectively in the sense that they stay with a few banks and the structures they go for are quite acceptable.
Q: What is the outlook for Indonesia? Asia Pulp & Paper has very publicly defaulted recently.
A: Whenever a large group goes into a restructuring, it is never good for the loan market and the financial institutions. Although people are saying that this will have an impact on Indonesia, I'm not so sure. First of all it is a corporate default, not a sovereign default. Clearly the economic and political situation may have led to the company's problem,s but APP is an export company and their business depends on global prices. Plus they did expand when the region was going into recession. I think the impact will be that bondholders will have to wait longer to get their money back. Bank exposure was substantial, but smaller than the capital market exposures. And I think that it has been going on for six months, so the lenders must have been aware of what was going on.
