subordinated instruments for
real estate in the country’s
first and second-tier cities.
It will focus on loans and
securities of high-quality real
estate covering commercial,
retail, residential, logistics and
industrial properties.
In the first quarter of 2019,
foreign investors accounted
for about half of the Rmb53bn
in acquisition value of China’s
commercial properties,
according to data from real
estate services specialist CBRE.
CONCENTRATION RISKS
The recent flow of commercial
property acquisition loans is
a boon for domestic lenders
after China’s increasingly
tightening curbs on real estate
speculation in the past couple
of months prompted a flight to
quality.
In early August, China’s
banking and insurance
regulator launched a
nationwide bank inspection to
determine if loans had been
used illegally to fund property
investment, Reuters reported.
In July, the government
moved to curb real estate
investments through some
trust companies by asking
them not to provide new
financing to real estate firms,
Reuters reported.
Regulatory curbs on the real
estate market, the country’s
economic slowdown and lower
overseas M&A activity are
pulling Chinese loan volume
lower.
The announced value of
outbound M&A from China
declined 49.5% year on year
to US$10.8bn in the first
quarter of 2019, according
to a May 6 research report
from accounting firm Ernst &
Young.
Some lenders facing sector
limits have been trying to
reduce existing loan exposure
to highly leveraged Chinese
developers so that they can
participate in the new loans
for international buyers.
“We often get calls from
other banks asking if we are
interested in buying real
estate related loans to Chinese
developers, but in fact, we
are also trying to trim our
exposure,” said another Hong
Kong-based banker. Retail bonds come
to Cambodia
Bonds ABA Bank extends bond investor base to individuals
with first bank issueBY DANIEL STANTONADVANCED BANK OF ASIA (ABA Bank)
has completed Cambodia’s first
retail bond offering, the latest
step in the development of
the South-East Asian nation’s
nascent capital market.
ABA Bank sold CR84.8bn
(US$21m) three-year notes at
par with a coupon of 7.75%,
the wide end of an 7.00%–
7.75% range. SBI Royal Securities
was sole financial adviser and
underwriter.
The offering, which was the
first by a Cambodian bank, was
open to both institutional and
retail investors. The majority
of investors were Cambodians,
and 60 of the 65 subscribers
were retail investors. The
insitutional buyers comprised a
mix of investment companies,
banks and insurers.
This was the third
Cambodian bond offering,
and the first to carry a
rating, broadening its appeal
to investors. By way of
comparison, microfinance
institution Hattha Kaksekar
had five subscribers for its
issue last year, which was
the first from the country.
Cambodia currently has no
government bonds.
S&P has assigned ABA Bank’s
bonds a B rating, helped by
its strong ownership. National
Bank of Canada owns a 90%
stake in ABA Bank, having first
invested in 2014 and built up
its initial 10% stake over the
years.
The bond subscription
was held on August 12-13, a
period of volatility for many
Asian currencies after the
renminbi breached a key
support level on August 5,
but the Cambodian riel was
relatively steady and did not
harm demand for the deal.
Still, the size was set below the
CR128bn maximum ABA Bankhad indicated.
“Regarding the pricing
level, the offered coupon rate
of 7.75% p.a. is quite high
for ABA compared to our
average deposit rates and the
overall cost of funds, but we
understood that bonds are
an instrument that is new
to the market, not known to
people, more complicated
in documentation and
procedures, so the coupon rate
was intentionally set at this
level in order to be attractive
for retail investors,” said Igor
Zimarev, head of marketing at
ABA Bank.
ABA Bank has US$91m
in subordinated loans from
National Bank, in tranches
paying interest rates from
7.58%–9.40%, according to
its 2018 annual report. It
also has US$80m-equivalent
of unsecured borrowings
in dollars and riels from
institutions including
International Finance Corp and
the Cambodian central bank at
rates of 2.60%–7.11%.
Proceeds will be used for
operating expenditure, as well
as to expand lending to rural
micro, small and medium
enterprises, including female
entrepreneurs.
S&P said the issue would
help ABA Bank meet
a regulatory target for
Cambodian banks to have at
least 10% of their loan portfolio
in local currency. Many
businesses in the country use
US dollars, and the central
bank is trying to encourage
greater use of the local
currency.
“ABA will continue to
regularly issue bonds in future
to support the capital market
development,” said Zimarev.
“We hope to introduce larger
volume and more advanced
products to our investors as
the capital market evolves.” For daily news stories
visit http://www.ifrasia.com“The relaxation will enable
NBFCs to raise more funds
through the public issue route,”
said a source from a NBFC. “The
DRR reserve relaxation gives
more distributable reserves for
the companies.”
Earlier in August, the central
bank increased the banks’
counterparty exposure limit to a
single NBFC to 20% of their Tier 1
capital from 15% earlier. The RBI
has also allowed bank credit to
registered NBFCs for on-lending
to be eligible for priority sector
lending in the small business,
housing and agriculture sectors
up to 5% of individual banks’
total priority sector lending on
an ongoing basis.
The central bank and
the government have also
harmonised risk weights on
NBFC exposure, allowing banks
to raise additional liquidity
by selling excess government
securities, and provided a
partial credit guarantee from
the government for banks to
purchase NBFC assets.
“These measures have helped
improve investor sentiment
and led to a positive bias
towards NBFCs,” said Joshi at
Tata Capital. However credit
differentiation continues in
the bond market, he said.
“The investor community is
differentiating among good-
rated and lower-rated NBFCs
because there are still issues
at balance-sheet level for some
companies, which will resolve
at its own pace.”
While loan growth for weak
shadow banks continues to
decline because of the funding
crunch, NBFCs with access
to liquidity have maintained
double-digit growth rates.
“We are planning to grow our
lending book by 20% in FY20,”
said Joshi. “Out of Rs440bn loan
book size, we are looking at
growing our retail book which
makes up 40% of the book.”