IFR 02.29.2020

„ FRONT STORY CHINA

Trip.com braves travel freeze

Underwriter StanChart invites commitments to US$1.2bn financing

Support expected from heavyweight Chinese banks

Sole underwriter Standard Chartered is facing

a stern test as it steers a US$1.2bn loan for

Chinese travel agency TRIP.COM GROUP through

syndication amid dire conditions for the

tourism industry as a result of the global

coronavirus outbreak.

The bank is seeking sub-underwriting

commitments of US$300m apiece from a

select group of international and Chinese

lenders for the deal, which comes as the

spread of the virus has forced more countries

to close their borders and impose strict

quarantine measures.

Trip.com’s stock is down more than 20%

from mid-January, and it has delayed the

announcement of its Q4 and full-year results

to March 18 from February 26 in order to

give investors more visibility into the

outlook for the current quarter.

Initial indications from market

participants pointed to some support from

heavyweight Chinese banks, which are

likely determine the mood among the wider

lending community.

“We are aware of the impact the virus

might have on the credit, but we decided to

go ahead given it is a top-tier borrower and

an industry leader,” said a Hong Kong-based

banker at a major Chinese bank, which is

seeking credit approvals to commit to the

deal.

Trip.com, formerly known as Ctrip.com, is

a barometer of sentiment among lenders for

businesses that have been directly affected

by the virus that continues to spread rapidly

around the world.

The travel sector is facing a slump in

demand as a result of containment measures

aimed at curbing the spread.

Italy has reported more than 400 cases,

while South Korea raised its disease alert to

THEûHIGHESTûLEVELûAFTERûCONlRMEDûCASESû

jumped to 1,595 as of last Thursday from less

than 100 about a week earlier.

LOCAL SUPPORT

International lenders, understandably, are

cautious about committing more funds,

especially with lack of clarity on how badly

the virus has hit Trip.com’s business.

“It’s obviously a tough time for tourism

enterprises like Ctrip, which is faced with

challenges of falling revenues on the back of

diving demand. We will be more

conservative in lending to the virus-hit

tourism sector as we don’t know how the

virus will affect the industry in the long

term,” said a senior loan banker at an

existing lender.

Some also felt the borrower was back to

the market too soon after completing a

US$2bn three-year loan last July. Of the 19

banks participating in that deal, including

the mandated lead arrangers and

bookrunners, 15 were Chinese.

Chinese lenders are again expected to

dominate the new loan in what would be

seen as supporting state policy.

“The message from the Chinese

government is to be accommodative,

especially to borrowers from sectors that

have been impacted by the virus,” said a

senior loans banker at an international bank.

“A lot of onshore liquidity in China will be

made available, which means Chinese banks

will dominate lending in the coming weeks,

if not months,” the banker added.

SARS EXPERIENCE

Other Chinese borrowers have managed to

TAPûINTOû#HINESEûLIQUIDITYûINûDIFlCULTûPERIODSû

in the past. Last November, Huawei

Technologies approached mainly the

Chinese lenders market for a US$1.5bn loan

after foreign banks snubbed a similar-sized

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MONTHSûEARLIERûAFTERûTHEû53ûPUTûTHEûlRMûONû

an export blacklist.

Some international lenders shied away

from lending to Huawei, despite the

company’s solid performance, in the face of

the sanctions and an economic slowdown in

China stemming from the country’s ongoing

trade war with the US.

Trip.com weathered the outbreak of

Severe Acute Respiratory Syndrome, another

coronavirus that killed hundreds in China

and Hong Kong, in 2003, going on to

complete a popular listing on Nasdaq in

December that year.

The company made a loss in the second

quarter of 2003, the height of the Sars crisis,

with revenues down 42%, before rebounding

in Q3, when its top-line revenues surged

196%.

The strong performance was due to a swift

turnaround for the travel industry in China

following a three-month travel downturn

during the Sars period and a broader

recognition of the Ctrip brand.

Some market participants are optimistic

about Trip.com’s prospects this time too.

“Once the restrictions on travel are lifted,

Ctrip will recover with a higher monthly

run-rate. Business executives affected by

travel restrictions in January and February

could look at resuming travel around April

or May. That’s when Ctrip’s numbers will

pick up,” said another loans banker in Hong

Kong.

4RIPCOMûHASûALSOûSIGNIlCANTLYûINCREASEDû

its non-Chinese operations in the last few

years, with the acquisition of fares search

engine Skyscanner, an increase of its stake in

India’s MakeMyTrip to 49% and the

announcement of a partnership with

TripAdvisor last November.

Trip.com’s international air ticketing

volume (excluding Greater China

destinations) has enjoyed triple-digit growth

for the past 12 quarters, according to its last

earnings statement.

Evelynn Lin, Apple Li

“We are aware of the impact the

virus might have on the credit,

but we decided to go ahead

given it is a top-tier borrower

and an industry leader”

International Financing Review February 29 2020 55

LOANS

Australia 56 India 57 Indonesia 57 Japan 58 Vietnam 59 Germany 59 Poland 60

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“The message from the

Chinese government is to be

accommodative, especially

to borrowers from sectors

that have been impacted by

the virus”

9 IFR Loans 2322 p 55 - 72 .indd 55 28 / 02 / 2020 18 : 11 : 31