Euro crisis casts pall on Asian syndicated loan market

As Timothy Geithner, Hillary Clinton and an unprecedented posse of around 200 US officials left Beijing, Asia’s top syndicated loan bankers assembled at the St Regis hotel for the annual jamboree of the Asia-Pacific Loan Market Association (APLMA) on May 27.


Having gone all that way, for once, all the talk was about Europe. And Beijing didn’t mind at all.


The daily increase in the scope of Europe’s sovereign and banking debt crisis has given the Chinese government the perfect justification not to have to revalue the renminbi, while the American administration made its point without having to pander to more strident voices back home. The financial markets seem to believe that a de-pegging of the Chinese currency will not be forthcoming. However, another view – more prevalent in China – is that this convenient situation has provided a platform for the Chinese government to do it now – precisely when they are not being told to do it.


Certainly, Chinese borrowers are banking on it happening. Constrained by government orders to the banks to stop lending in the domestic market, borrowers (particularly property developers) have flocked to tap the liquidity in the Hong Kong offshore loan market – spurred on by the belief that the repayment of their dollars will be made cheaper when the renminbi appreciates. While syndicated lending in mainland China has fallen, Chinese borrowing in Hong Kong has rocketed to USD12.2 billion this year – six times the rate last year.


But Europe has cast its pall over the Asian syndicated loan market too and the launch of a number of new money deals, especially for corporates with heavy export dependence on Europe, have stalled and the seemingly inexorable trend to lower pricing has been arrested.


For anyone contemplating going to the market now, the important factor is that the three-month Libor has risen to over 0.5% from below 0.25% three months ago. There is caution among some corporates about borrowing for new investment, with some deciding to wait for pricing to come down. But that is by no means certain, say bankers. Anything can happen – just look at Greece.


“They should grab the money while it’s on the table,” says one head of loan syndication at one of Asia’s leading lenders; he points out that last year Asian liquidity lagged the EU and US markets; this time Asia could be affected down the line by a contraction of liquidity among the European banks if the continent’s debt crisis deepens further.


However, although the European factor may be on bankers’ minds right now, it is still China that dominates their world. Beijing for the APLMA conference today, following on from Shanghai last year. The APLMA has found its raison d’être in its home from home in China: years of expertise in western lending practices and documentation can be passed on to the Chinese banks, while they can introduce the non-Chinese banks to lending partners and, most importantly, scores of new borrowers.


27 May 2010


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