Loan markets could slow amid bond bonanza

The recent uptick in loan volumes is expected to slow as bond markets return and lenders turn selective in the fourth quarter.
'A lot of the China loans this year [were] M&A driven - such as Bright Foods, Alibaba and Focus Media'.
'A lot of the China loans this year [were] M&A driven - such as Bright Foods, Alibaba and Focus Media'.

The recent uptick in loan volumes could slow as bond markets return to health and lenders turn selective in the fourth quarter.

Asia's loan and bond markets have long had a displacement effect on each other. Last year - a record year for Asia's bond markets - was a limp year for loans.

When bond markets are dead, borrowers often turn to loan markets for funding. During the emerging market bond rout this summer, when most Asian investors were loath to touch new bonds with a barge pole, there was a noticeable uptick in the region's loan volumes.

“When the bond blip happened in June, we tended to see borrowers move from bonds to loans as they weren't sure if the bond market was going to come back,” said one Hong Kong-based senior loan banker. “We saw more inquiries, but now that has obviously changed with the bond markets re-opening in the past few weeks.”

Commercial banks also typically start hitting lending limits in the fourth quarter and turn selective on who they lend to, which could dampen volumes.

However, another banker feels that a number of borrowers turn to the loan markets regardless of the state of the bond markets, particularly if they are looking to fund M&A transactions. Much of the loans this year have been driven by companies’ acquisitions.

Data from the first nine months reflects largely flat volumes. Asia Pacific ex-Japan syndicated loan volume reached $284.7 billion in the first nine months, down 1% from the same period last year, according to Dealogic data. G3 currency borrowing accounted for 43% of the market, the highest share on record, and up from a 29% share during the same period in 2012.

Australia continued to lead, accounting for 22% of total loan volumes, with Origin Energy's $5.8 billion facility the largest individual loan among them. China was another bright spot, driven by tight onshore liquidity crunch and a flurry of M&A transactions. Chinese loan volumes chalked up a record $56.5 billion in the first nine months of 2013, up 36% from the same period last year.

"A lot of the China loans this year [were] M&A driven -- such as Bright Foods, Alibaba and Focus Media," said a second loan banker.

In contrast, India syndicated loan volumes stood at $37.7 billion in the first nine months - down 25% on the year and the lowest total for the first nine months of a year since 2008. However, there have been sizeable deals such as Reliance Industries' $1.75 billion loan, which has closed, and metals and mining company Vedanta Resources $1.2 billion syndicated loan, which is in the process of syndication.

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