In the past couple of years the market has been flooded with tightly priced plain vanilla deals that provide minimal fee income for the banks involved. Market observers have argued that this trend is changing as high yield targets are set to become the driving force behind banks lending policies.
China Unicom signed its $700 million three, five and seven year transaction today with just six banks joining in general syndication. Mandated arrangers Bank of China, China Construction Bank, HSBC, ICBC Asia, Hang Seng Bank and Standard Chartered Bank managed to sell down just 30% of the facility, holding a whopping $487 million between them.
Market observers had suggested the deal would end up with a top heavy syndicate as the facility was priced at just 45bp for $30 million tickets. In addition lenders were required to book almost 30% of their commitments in the seven year tranche, giving a relatively poor return for such a long tenor.
In contrast to this financing it seems as though the Korean Banks have finally discarded their long running policy of forcing banks to provide funds at sub-market pricing. Korea Exchange Bank priced its $200 million one, two and three year deal at 50bp, 60bp and 70bp and received an overwhelming reception with 17 banks joining in general pushing the amount up from $150 million.
Officials working on the transaction suggested that pricing was the key factor in attracting these banks into the syndicate. Dealogic figures show that the two year tranche paid 20bp more than the equivalent fundraising last year and 8bp more than the far less successful $130m deal in May.
KorAm Bank also switched funding strategies to great effect, after raising a quiet $140 million club loan in May it also attracted 17 banks into its recent $150 million one year financing. The loan was massively oversubscribed but, much to the lenders disappointment, allocations were substantially scaled back and the deal was not upsized.
The success of these plain vanilla loans has not deflected banks in their attempt to gain higher yields through more structured packages such as LBO fundraisings. Bankers have been talking up the emergence of these instruments since Wong's Circuits completed a $150m transaction in 2000, however the market has never really taken off.
Initially JP Morgan and now DBS Bank are two of the pioneers in this area and recently joined forces with Credit Lyonnais and Chinatrust Commercial Bank to syndicate the NT$10.57 billion ($310 million) LBO deal for Taiwan Broadband. This facility was hugely successful, surprising even the mandated arrangers, as 12 mostly domestic banks joined to achieve a selldown of over 60%.
Bankers are hoping that this may lay the foundations for more of these deals to come to the market as they provide far superior fee income to anything on offer in the plain vanilla sector. The main target countries for these sort of deals are Taiwan and Korea, although Singapore provided one with the Singtel Yellow Pages transaction late last year.
DBS Bank is also exploring other opportunities and recently secured a mandate, along with Sumitomo Mitsui Banking Corp and Commerce International Merchant Bankers Bhd, to arrange a potential $265 million credit for Malaysian TV broadcaster Astro. This deal will be syndicated in conjunction with an IPO for the borrower as it looks to fund the cost of its recent acquisition of the film library of the highly popular Shaw Brothers and to refinance its existing debt.
This facility follows on from another stock and loan deal for Cheung Kong through its Singapore listed Fortune Reit. This financing was launched into syndication recently and is already gaining substantial support in the market.
Loan syndicators say that there is massive potential in the Asian market for these type of transactions. In the past banks have shied away due to the risks involved, but they are now building up specialised teams using the expertise of bankers from the US and Europe and are able to spread the risk more effectively.
This will allow bankers to consider such deals more seriously than in the past and may lead to more structured financings hitting the market in the future. Market observers say that this is unlikely to affect the abundance of vanilla loans, but may force these borrowers to consider offering higher fees to attract banks commitments as they search for the highest yields.
