Demand outstrips supply in Aussie project finance

Tight pricing and a dilution in terms and conditions makes syndicating project finance loans a competitive game, says ANZ.
Christina Tonkin became head of structured debt for ANZ late last year. She is part of a new debt team mainly poached from the ranks of Westpac and headed by Cathryn Carver. Here Tonkin talks about the pipeline for project finance deals in Australia this year.

What was the thinking behind appointing you to head ANZÆs structured debt initiatives?

Tonkin: The bank has always been involved in arranging and syndicating structured debt loans but these loan businesses operated fairly separately from each other. Organizationally, syndications fell under the financial markets business. My appointment was designed to pull these businesses together under one umbrella so that we can deliver the best solution to the client; to create tighter alignment between syndications and our other business units. Structured debt covers everything from corporate loans to leveraged loans to private equity loans and project finance.

LetÆs explore project finance for a minute. Last year was a relatively slow year for large-scale infrastructure projects. Does the pipeline for 2006 look stronger?

2005 was active on the resources side and there were also a number of utility refinancings occurring so I would not describe it as slow. But, yes, 2005 was not a big year for greenfield project finance.

This year lenders are focusing on a few big deals like the North-South Bypass Tunnel in Brisbane and the PPP with RailCorp û two deals worth more than A$1.5 billion. There will also be activity in the resources and oil and gas sectors given the continued boom in commodities. And it is expected that there will be some refinancings in the power and utilities sector.

Do you expect to see a continuation of ôclub-styleö syndications where a small number of banks take larger holds?

The Australian market has always seen a large number of club deals and I expect this trend will continue. There is a shortage of loan assets available in the market compared to the number of banks willing to extend credit. So everyone takes larger holds.

Some banks then sell down in the secondary market. It is a competitive market at present. The domestic banks continue to compete against a number of strong foreign banks, particularly European banks that like Aussie deals because they are more attractively priced than deals at home.

Is secondary market demand coming from on- or offshore?

Both. Though there havenÆt been too many deals in recent times that have had to leave Australia in order to be sold in primary syndication.

How important is ANZÆs Asian franchise in fuelling the loans business?

It's a key differentiator when you compare ANZ to other domestic Australian banks. We are the only Australian bank with a notable Asian franchise which is powerful when you think of the number of Australian companies that are now pursuing projects in the region. In 2004, ANZ was the lead arranger of OxianaÆs gold project in Laos.

What is the biggest issue facing the Australian loans market in the next 12 months?

To generate enough deal flow to absorb demand. Australia will always require infrastructure and we are a commodity-rich country so there will always be deals that need structuring. In project finance the pricing has come in over recent years and there has been a dilution in terms and conditions.

But this is a long-term business and the banks that operate in this arena are extremely capable, so the transactions on the whole are well structured.
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