Thu Jun 28, 2012 1:20pm EDT
* Asia Pac companies sidestep more expensive loans
* Japan, China first-half lending higher year on year
* Australia, Hong Kong and Singapore down
By Jacqueline Poh
LONDON, June 28 (Reuters) - Asia Pacific lending, excluding Japan, was 26 percent lower at $128 billion in the first six months of 2012, compared to a year earlier, as companies opted to raise bonds and bilateral loans instead of syndicated loans.
Deal flow was also lower with only 424 deals completed in the first half compared to 545 in the same period of 2011 as higher bank funding costs boosted loan pricing and put companies off raising more expensive syndicated loans.
Highly-rated investment-grade companies, which make up most of Asia Pacific's borrowing, chose to tap the bond market instead to secure long-term funding at attractive rates from more reliable bond investors as deleveraging banks remained unpredictable.
"After going through last year's volatility, corporates realised the bank market may not be the most reliable source of financing." said Sonia Li, a managing director and JP Morgan's head of loan syndication.
Japan is Asia's largest loan market and is more resilient due to Japanese banks high deposit ratios and low funding costs. Japanese lending increased 18 percent in the first half to $163 billion, up from $138.7 billion a year earlier.
Outside Japan, China was the only North Asian country to show an increase in first half-volume, to $22 billion from last year's $15.5 billion.
Bankers expected China to see strong growth after the Chinese government relaxed banks' lending quotas earlier this year, encouraging more companies to raise onshore loans.
Australia, Hong Kong and Singapore are usually Asia Pacific's most active markets, but all saw significant drops in volume.
Australian lending fell 20 percent year-on-year to $35 billion in the first half from $44 billion in the same period of 2011. Hong Kong saw a 30 percent decrease and Singapore was down 26 percent.
Although lending was down at the half year, volume was generally higher in the second quarter, compared to the first. Hong Kong lending tripled to $16.7 billion in the second quarter from $4.6 billion in the first quarter.
Hong Kong's increased loan volume was due to several large deals including a $3 billion privatisation financing for Chinese e-commerce company Alibaba and an increased $2.4 billion refinancing for commodities trader Noble Group
"Hong Kong and China's loan markets are active right now. Hong Kong has traditionally been supported by refinancing while new money deals will come from real estate firms or a few surprising acquisition opportunities, said Pedro Cheung, Bank of China Hong Kong's deputy general manager and head of corporate finance.
M&A AND REFI BOOST 2H
Asia Pacific volume is expected to continue to pick up in the second half of the year, with several refinancing loans and deals backing mergers and acquisitions (M&A) in the pipeline. Project and infrastructure financing and offshore borrowing from Chinese companies are also expected to drive loan volume growth.
"The shortfall in volume will be eliminated as the year progresses with refinancing and event-driven transactions," said John Corrin, ANZ's global head of loan syndications.
Refinancing made up 41 percent of all lending in the first six months (excluding Japan) and acquisition financing made up 8 percent. Both figures are expected to rise with several large loans in the offing.
On the M&A side, Hong Kong Exchanges & Clearing is raising a $2 billion bridge loan to back its purchase of the London Metal Exchange and China's Bright Food (Group) Co Ltd is raising a $550-850 million financing to back its purchase of UK cereal maker Weetabix.
Hutchison Whampoa is in the market with a SKr10.5bn ($1.49 billion) refinancing for its Swedish unit Hi3G Access, and commodity refinancing is expected to continue as several one-year loans mature this year.
TAIWANESE BANKS BUSY
The Asia Pacific loan market saw more defensive club deals to counter global market volatility. In the first half, 41 percent of Asia Pacific loans were placed with a small club of banks and 59 percent were syndicated widely.
Club deals have always been a feature of the Asian market, due to the region's strong emphasis on relationship banking, but they have become more prevalent since 2007, when 83 percent of loans were syndicated widely and 17 percent were sold on a club basis.
Relatively few loans were underwritten in the first half of 2012 as Asian companies opted to save fees and arrange their own deals and lean on strong banking relationships.
When loans were syndicated in the first half, cash-rich Taiwanese banks were preferred lenders. Taiwanese banks have avoided rising funding costs and have lower return requirements than other Asian lenders.
Taiwanese banks were Asia Pacific's most active lenders in the first half, followed by Japan's liquid banks, which can also accept lower pricing.
Top Asian companies paid average all-in interest margins of 200 basis points (bp) on three-year loans, but some companies tried to push pricing down.
Cathay Pacific paid an all-in margin of 208 bp on a five-year loan in May which attracted 10 Taiwanese banks.
Other Asian banks found it harder to compete due to higher funding costs and Basel III capital requirements.
"Average pricing now may not even meet some (banks') requirements for returns," one banker said. (Reporting by Jacqueline Poh)
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