Asia leveraged loans liquid despite US sell-off

The region's leveraged loan markets are still liquid as banks are willing to lend and private equity have funds to deploy says a BofML loan specialist.

The leveraged loan market in Asia remains liquid in spite of volatility in the US as Asian banks are still keen to lend while private equity sponsors have capital to deploy in the region.

In the US, pricing on leveraged loans flexed up in August and at least one Asia borrower HCP Global was forced to pull a deal.

But, according to data provider Dealogic, Asia ex-Japan leveraged loan volumes have chalked up $107 billion year-to-date, only slightly lower than the $120 billion raised during the same period last year.

Leveraged loans as a class have posted a major comeback since 2012, when volumes touched $131 billion compared to a mere $17 billion during the previous year. Dealogic includes all leveraged buyouts and loans issued by leveraged companies with ratings of BB+ or below.

So far this year, sponsor-related leveraged buyouts in the region have reached $6.5 billion, roughly flat to last year. However, market participants expect private equity funds to pick up activity during the second half as they have funds to deploy. KKR, the US private equity firm, for example last year closed a $6 billion pan Asia private equity fund.

“Sponsor activity has definitely picked up dramatically,” said Siong Ooi, head of Asia-Pacific syndicated and leverage finance at Bank of America Merrill Lynch. “Sponsors are looking at opportunities to deploy capital and several are looking at large situations,” said Ooi.

KKR and TPG are also in the midst of a bidding war for Australia's Treasury Wine Estates, each offering $3.2 billion for the company. Sponsors have also been tapping the market during the first half, with Carlyle's loan to fund its $1.9 billion to buy South Korean security business ADT Korea from Tyco, and KKR's buyout of Singapore packaging company Goodpack being examples.

Telco, media in focus

So far this year, acquisition-related lending for Asia ex-Japan has amounted to $30.3 billion compared to $25.8 billion for the same period last year, according to Deaogic. Acquisition-related activity has historically focused on the oil and gas sector, which accounted for nearly a third of the region's acquisition-related lending last year.

Moving forward, Ooi expects lending to be driven by sectors outside of the traditional oil and gas space. “We see a lot of acquisition finance activity in the telco, media and technology (TMT) sector,” said Ooi. “The activity will also be driven by consumer and retail sectors,” he added.

Recent examples of deals within the TMT sector include Giant Interactive's $850 million buyout loan, which financed a take-private bid by a consortium of investors including Giant Interactive chairman Yuzhu Shi, Baring Private Equity Asia and Hony Capital. Another gaming company, Shanda Games, was also expected to launch a buyout loan soon after Giant Interactive closed but has been delayed. 

The US institutional investor loan market, or the Term Loan B market, offers Asian borrowers the ability to raise funds at a higher leverage multiple. Goodpack, for example, in August tapped the US institutional investor market with a $720 million loan.

However, it is also one that is more affected by headline news than the Asian bank-dominated loan market. Chinese packaging company HCP, for example, was forced to pull its Term loan B in August amid volatile markets.

In spite of the challenges faced by HCP, Ooi expects the Term loan B market to continue to offer an alternative for borrowers. “The Term loan B market is not going away,” said Ooi. “Issuance windows open and close, it is a matter of hitting the right windows to access the market.

 

In contrast to the US, Asia's loan markets offer lower leverage multiples, shorter tenors and more amortisation but is less affected by market volatility. However, the migration of loans to the US might force Asian lenders to offer better terms for companies.

“Asia's lenders need to stretch so that the markets here remain competitive compared to the US market,” said Ooi. “Some of the things we are trying to push in the Asia loan market is for less amortisation and more bullet lending, which is not too dissimilar to the Australian and Japanese loan market,” he added.

Indian loans return

Away from leveraged finance, Indian borrowers are tapping the loan market in droves. According to Dealogic, Indian loan volumes have chalked up to $49 billion so far this year, exceeding the $36 billion for the same period last year.

“India loan activity has picked up dramatically. In the lead up to the elections, there was quite a pause but that has all changed post elections as companies are rushing to raise funds,” said Ooi.

The most high profile is Tata Steel, which has mandated banks for a jumbo $5.6 billion loan package. The package comprises a $3.2 billion-equivalent loan package, underwritten by ANZ, Bank of America Merrill Lynch, Bank of Tokyo Mitsubishi, BNP Paribas, Citi, Credit Agricole, Deutsche Bank, HSBC, Rabobank, RBS and Standard Chartered, and a €1.8bn (US$2.44bn) seven-year loan underwritten by State Bank of India.

The $3.2 billion equivalent multi-currency loan, which is being syndicated among international banks, includes a $1.5 billion seven-year amortising facility, a £700 million six-year revolving credit facility and a €370 million five-year term loan. It is currently in the midst of senior syndication.

The proceeds will be used to refinance an existing loan Tata Steel took when it bought Anglo-Dutch steelmaker Corus in 2007 at the height of the steel boom. 

Elsewhere, Tata Power is also syndicating a $560 million loan. Another major conglomerate Reliance Industries is also seeking $1.5 billion loan for its telco unit Reliance Jio. 

 
¬ Haymarket Media Limited. All rights reserved.

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