Chinese companies have been wading into the offshore loan market during the past few months, thanks to a spike in merger & acquisition activity and tight onshore liquidity. This has contributed to an overall uptick in loan volumes this year.
According to Dealogic, borrowers from Asia excluding Japan raised a total of $85.5 billion from dollar loans for the year to date. This represents a 50% rise from the same period last year. China accounted for 30.6% of the year-to-date volume, a rise from 18.5% in 2012 and 6.8% in 2011.
"Previously, the loan business has been a South and Southeast Asian business. That has changed significantly in the last couple of months and the pendulum has swung into the China space," said Anup Kuruvilla, managing director, loan syndicate at RBS.
Much of the lending has been driven by big ticket M&A transactions such as Shuanghui International's acquisition of Smithfield Foods and CNOOC's acquistion of Nexxen.
And with China's regulators tightening liquidity onshore and enforcing loan to deposit ratios, this has crimped lending ability among some mainland banks. On the other hand, companies are keen to take on dollar loans, as they expect the renminbi to continue to appreciate against the dollar.
The combination of these factors has thrown up opportunities for foreign lenders. Shuanghui International's $4 billion acquistion loan currently has only two Chinese arrangers - Bank of China and ICBC. The remaining arrangers - Rabobank, Natixis, RBS, Standard Chartered, Credit Agricole and DBS - are foreign banks.
"China has always been a very big loan market but it had been a loan market that was dominated by the big four banks, which did large bilateral loans with very significant individual ticket sizes. But now with liquidity tightening in the onshore market, lending from the smaller Chinese banks has come to a halt leaving an opportunity for foreign lenders in the offshore markets," Kuruvilla added.
The European lenders were in retreat mode between 2008 and 2009 but since then, many have resumed lending in the region. However, their lending activities have been outpaced by regional lenders. According to Dealogic data, the top five dollar lenders in Asia ex Japan are Standard Chartered, Deutsche Bank, ANZ, DBS and State Bank of India.
Some, however, believe that foreign banks have an edge thanks to their M&A expertise, rather than due to the tight liquidity conditions in China. And despite tight onshore liquidity in India, the offshore loan market has stayed fairly quiet so far this year, accounting for only about a tenth of the loan volumes.
"The big jump in China offshore loans is thanks to increased M&A activity, and we have seen more involvement from foreign banks because M&A is frequently led by international banks, no matter what the liquidity situation is," said John Corrin, global head of loan syndication at ANZ. "India is disproportionately quiet for a market of its size,” he added.