potentially avoiding the risk of
a fire sale of the assets in the
cover pool. This can provide
important comfort for investors
in smaller banks that are rated
several notches below the Aa3/
AA–/AA– rated majors. BoQ’s
senior unsecured ratings are A3/
BBB+/A– while IBAL is a A3/A/A
credit.
IBAL opted for the soft bullet
option to replicate the same
programme structure adopted
for all other covered issues in the
local market, Casey said.
IBAL, Australia’s fifth largest
mortgage lender, has plenty
of scope for further issuance
having established a hefty
A$7.5bn multi-currency covered
programme that comfortably
exceeds BoQ and Macquarie’s
respective A$3.25bn and
A$5bn programmes. Suncorp’s
programme is US$5bn, while the
majors’ covered programmes are
for US$20bn or US$30bn.
The Australian Prudential
Regulatory Authority puts an
8% cap on bank assets usable as
collateral.
Chinese banks review Pakistan
Loans Emerging markets currency turbulence increases concernsBY YAN JIANGChinese banks are increasingly
wary about lending to
PAKISTAN as emerging markets
currency volatility threatens
the incoming coalition
government’s efforts to close
an external financing gap, amid
mounting US opposition to a
possible IMF bailout.
China’s banks have already
extended tens of billions of
dollars in infrastructure loans
to support the US$57bn China-
Pakistan Economic Corridor
(CPEC), a centerpiece of Beijing’s
Belt & Road Initiative which
seeks to increase its geopolitical
influence.
Pakistan’s foreign exchange
reserves are dwindling and it
is expected to seek a bailout
of more than US$10bn shortly
from the IMF and further
funding from allies, including
China and Saudi Arabia, to avoid
a currency crisis.
However the newly-elected
Prime Minister Imran Khan and
his Pakistan Tehreek-e-Insaf
Party only has a thin majority
in parliament and the plan
faces strong domestic and
international opposition.
The IMF may seek to
impose conditions on any new
borrowing and the US has voiced
strong opposition and concern
that any funding should not be
used to repay Chinese lending.
“As a commercial bank we
will of course use extra caution
when considering new loans
to Pakistan,” one Beijing-based
banker said.
The 40% devaluation of the
Turkish lira so far this year
amid a deepening economic
crisis, together with pressure on
the Russian rouble since early
August, has amplified Chinese
concerns about security in
Pakistan as Beijing defends the
value of the renminbi amid a
trade war against the United
States.
“Our bank has just tightened
all sovereign loans to non-developed countries and we are
now reassessing country risks.
We are on close watch against
any further black swan events,”
a second source said.
Pakistan’s new government
is due to repay a US$255m
sovereign loan in late September.
The one-year bullet loan
was signed with four banks,
including sole bookrunner Credit
Suisse and two Chinese lenders,
in September 2017, according to
data from Loan Pricing Corp.
Chinese banks have increased
their commitment to Pakistani
sovereign loans in recent
years and policy lenders China
Development Bank and the
Export-Import Bank of China
(Chexim) are playing a leading
role in financing CPEC’s
construction of ports, power
stations and transport links.
These loans are at the centre
of a debate on whether the
IMF should help Pakistan
for the second time in five
years. Pakistan is also seeking
financing from alternative
sources and is lining up a
US$4bn loan from Saudi-backed
Islamic Development Bank,
according to media reports in
early August.
Pakistani officials have tried
to shrug off US concerns and
decouple the possible IMF
bailout from Chinese loans for
CPEC.
Pakistan’s ex-finance minister
Miftah Ismail told Reuters
earlier this month that total
Chinese debt repayment and
profit expatriation by Chinese
companies combined would stay
below US$1bn per annum until
2023.
The loans, which have 30-
year tenors and five-year grace
periods, are a combination of
zero-interest debt, concessionary
and some market-rate
borrowings, with weighted-
average interest rates of about
2%, he said.
Reuters also reported in July
that in the first 10 months
of the fiscal year, China lentPakistan US$1.5bn in bilateral
loans, along with US$2.9bn of
commercial bank loans mostly
from Chinese lenders.
Official data on Chinese
lending to Pakistan is not
available. CDB approved
10 projects in Pakistan and
committed US$1.3bn in loans
as of the end of March 2015,
according to its website. That
figure had risen to 16 projects
and US$4.6bn loans by mid-June
2016, a report by the official
People’s Daily said.
CDB has become more
prudent and rejected some loans
for Pakistan more recently,
a third source said. Most of
CDB’s loans are extended under
government instructions, but
it makes some commercial
loans. CDB was not immediately
available to comment.
The policy bank does not
have a branch in Pakistan, but
China’s state-owned commercial
lenders are increasing their
presence.
Bank of China opened a
Karachi branch last November.
ICBC was the first Chinese bank
to start operations in Pakistan
in 2011, and now has three
branches in Karachi, Islamabad
and Lahore.
ICBC is also the most active
Chinese lender in Pakistan’s
syndicated sovereign loans. It
was the mandated lead arranger
and bookrunner along with
Credit Suisse of Pakistan’s latest
US$565m one-year bullet deal
signed in July and took a final
hold of US$225m.
Other banks that have
committed to Pakistan’s
sovereign loans include Bank
of China, Bank of Zhengzhou,
China Minsheng Banking Corp,
Chexim and Postal Savings Bank
of China.
“We are worried if our existing
loans will get repaid in a timely
fashion,” the second source said.
“We’ll be closely watching the
negotiations between Pakistan
and IMF to see what restrictions
the fund will impose.” For daily news stories
visit http://www.ifrasia.comusually give better spreads, they
still buy private placements [in
yen], even if giving up the better
yields, because these issuers
supply long-end bonds,” said the
banker at the European house.
Another banker at a Japanese
firm said the jump in demand
for long-dated assets was down
to a single major buyer.
“Before the summer holidays,
there was probably [one-off ]
demand from one [Japanese]
investor looking to buy long-end
bonds.”
Bankers also stressed that
funding conditions had only
improved for a select group
of high-rated borrowers, not
necessarily for all foreign
issuers. Nonetheless, the return
of some rare issuers is a sign
that the yen market is once
again drawing attention as a
funding source.
“We can’t say [international
yen issuance] is dramatically
increasing, but I think there will
be more issuance as yields have
been rising [globally],” said the
European banker.