HONG KONG, June 30 (LPC) – Syndicated loans in Asia-Pacific, excluding Japan, plunged to their lowest level in eight years as the global economy struggled to recover from the shock of the pandemic coronavirus.

Lending volumes in the first half of 2020 fell nearly 17% to US $ 195.74 billion from US $ 235.58 billion in the same period a year ago as the number of transactions fell to 589 compared to 726 in the first six months of 2019.

Loans in the second quarter of this year held up well at $ 101.19 billion, compared to $ 94.19 billion raised in the previous quarter and given the onset of the Covid-19 disease which resulted in restrictions on travel and a reduction in economic activity globally.

“From the first quarter to the start of the second quarter, most banks were focused on preserving their capital to support existing customers, so there was less interest in looking at new transactions or new loans, except for some really attractive names, ”said Benjamin Ng, co-head of debt capital markets for Asia at Citigroup in Hong Kong.

Debt repayment and refinancing continued to be the main driver of market activity, accounting for US $ 75.02 billion, or 38.32% of total lending volume in the first half of 2020.

Aviation has been one of the sectors that has suffered the most from the pandemic, as unprecedented lockdowns in many countries disrupted air travel, causing demand to drop significantly. Airlines in the region have struggled to put in place liquidity facilities to deal with disruption and lost revenue, with many relying on state support.

Australian flagship Qantas Airways was the only airline in Asia to weather market turmoil in the second quarter with a syndicated loan. In May, it entered into a 10-year amortizing loan of A $ 450 million (US $ 299 million), in which nine banks participated, including five under general syndication.

Most other airlines have bilateral agreements or clubs or emergency funding from their governments. Aircraft leasing companies postponed new purchases and barely borrowed in the loan market. Total loans for the first half of 2020 for aircraft leasing companies in Asia-Pacific were only US $ 289.9 million, compared to US $ 2.65 billion in the same period a year ago. year.

Travel restrictions have also impacted syndicated credit activity in other ways.

“Syndications are taking longer to close, in part due to work-from-home measures, but target lenders are also increasingly being watched,” said Andrew Ashman, APAC loan syndicate manager at Barclays in Singapore. . “Banks take their time to do their due diligence, especially for new relationships, so it takes more time to get things done.”

M&A STANDSTILL

Event finance was also hit hard, with volume in the first six months of 2020 dropping 25.82% to $ 16.84 billion from $ 22.7 billion, and the number of transactions nearly declined by half to go from 46 to 24.

The gap between valuation expectations between buyers and sellers has widened due to market volatility and, combined with the constraints on conducting site visits and due diligence, has increased the barriers for the flow of transactions. Mergers and Acquisitions. Major M&A loan markets, such as Hong Kong and Taiwan, suffered significant year-over-year declines, with Hong Kong falling 75.12% to US $ 2.40 billion.

China’s event loans soared 171.26% year-on-year to US $ 3.74 billion, thanks to a loan of Rmb 20 billion (US $ 2.83 billion) in February for the Hillhouse-backed Zhuhai Mingjun acquires a 15% stake in Shenzhen-listed Gree Electric Appliances. Inc of Zhuhai, a deal that was first announced in October 2019.

Despite the rise this year, mergers and acquisitions from China have declined over the years, and geopolitical factors such as rising anti-China sentiment and its long trade war with the United States are likely to add to the challenges. of the conclusion of agreements.

Australia stood out, going against the regional trend with $ 5.46 billion in event loans in the first half of 2020. Most of that volume was largely thanks to the giant 5.25 financing. billion Australian dollars supporting the merger of Vodafone Hutchison Australia and TPG Telecom.

Leverage finance, primarily in the form of B-term loans, continued to expand in Australia with a complementary acquisition of Broadspectrum by infrastructure services firm Ventia, equivalent to US $ 327 million, entered into with success in June. The deal was the first TLB to be launched and closed in the region after the Covid-19 outbreak.

Despite the decline in activity, bankers are optimistic about a resumption of M&A operations.

“I would expect that well-capitalized and liquid companies as well as private equity sponsors would be in a very good position to take advantage of new acquisition opportunities that will undoubtedly arise in the coming year,” he said. said James Poulos, Head of Loans and Syndications Markets for Australia and New Zealand at MUFG.

RECOVERY?

Asia is better placed than the rest of the world to recover from the impact of Covid-19 in the coming months, according to market players.

Rating agency Fitch said in a June 9 report that it expected economic momentum in Asia-Pacific to turn positive in the second half of the year, as domestic lockdowns eased and external demand s ‘gradually improving, limiting the decline in regional economic output to 1.7% in its entirety. -year 2020.

The report also says the region as a whole is on the verge of outperforming the global economy. Lending bankers are also eagerly awaiting a construction pipeline and reduced pressure on liquidity and the cost of funding.

“Foreign banks have been more supportive this time around than they were during the 2008 global financial crisis, when there was a greater downturn in their home markets,” said Gavin Chappell, manager. Australia syndications at ANZ.

He warned, however, that a recovery could be delayed due to banks’ capital positions in the event of wider global economic fallout and corporate downgrades and defaults over the next six to 12 months.