Huarong units tweak loan terms
Loans Contrasting fortunes as Rongde trims margin, HIFH cuts sizeBY EVELYNN LINTwo units of Huarong Asset
Management, China’s biggest
distressed-debt manager, are
taking contrasting approaches
to syndicated financings as
lenders’ exposure mounts after
the group’s recent US$1.71bn
borrowing binge.
HUARONG RONGDE (HONG KONG)
INVESTMENT MANAGEMENT cut the
interest margin on a US$100m
one-year revolving credit after
a strong reception for another
similar loan for HUARONG
INVESTMENT STOCK CORP (HISC).
Hong Kong-listed brokerage
HUARONG INTERNATIONAL FINANCIAL
HOLDINGS (HIFH), on the other
hand, reduced the size of a
364-day loan to HK$2.72bn-
equivalent (US$349m) from
HK$3bn-equivalent as it tries to
close another HK$2bn one-year
club loan via coordinator ChinaCITIC Bank International.
Huarong Asset Management
entities have already raised
four loans totalling US$1.71bn
in recent months, according to
Thomson Reuters LPC data. The
two new loans bring the firm’s
borrowings to US$2.1bn, but are
creating some new challenges
among potential lenders.
“We are near our limits now.
We already have some exposure
to (Huarong’s) bilateral loans
or bonds,” a senior loan banker
said.
Although Huarong Asset
Management has strategic
position in China’s financial
services sector and is closely
regulated and well positioned to
benefit from China’s economic
slowdown, multiple loans are
causing some confusion.
“While it seems that the use
of the proceeds is different as
different entities are involved indifferent businesses, we wonder
what Huarong’s strategy is and
we are concerned of the risk the
group is taking by borrowing
heavily to fund expansion,” the
senior loan banker said.
Rongde cut its interest margin
by 25bp to 230bp, but is offering
a one-time amendment fee of
25bp, keeping top-level all-in
pricing unchanged at 270bp.
Mandated lead arranger and
bookrunner CTBC Bank launched
the deal in March, and has
faced competition from another
HK$3bn 364-day loan for HISC,
launched around the same time
via Credit Suisse.
Surprisingly, HISC’s loan
attracted 13 lenders and was
increased to HK$3.6bn in June,
despite paying a tighter top-level
all-in pricing of 260bp, based on
a margin of 220bp over Hibor or
Libor.
“The margin for HuarongRongde was decreased to match
more closely that offered by
HISC,” said a Taiwan-based senior
loan banker.
Rongde’s decision to reduce
the margin follows the rousing
reception for HISC’s loan.
Despite the pricing revision,
some lenders still find the
deal attractive given Huarong
Asset Management’s strategic
importance in China’s financial
services industry.
Fitch said in June that it
expected China economic
slowdown to result in an
increased need for distressed
debt management.
“Pricing is still very attractive
as Huarong is a top-tier name
and its oversight by the Ministry
of Finance and the China
Banking Regulatory Commission
provides us assurance about the
credit,” the Taiwan-based senior
loan banker said.
“Moreover, the deal carries
a short maturity of one year,
which is not that risky.”
Meanwhile, HIFH cut the
size of its 364-day facility toAustralia faces DCM headwinds
Bonds Buyside and sellside pressures seen curbing issuance after record yearBY JOHN WEAVERSAustralia’s booming bond and
securitisation markets are
expected to lose momentum
next year as a lack of M&A
activity, a slowing housing
market and buyside factors
weigh on debt issuance.
Aussie bond sales this
year have reached A$131bn
(US$101bn), smashing 2016’s
A$112.3bn annual record, while
the ABS market is rounding out
its biggest year since the global
financial crisis, with this year’s
A$32.3bn tally already eclipsing
the A$30.8bn 2014 post-crisis
peak.
The robust pace of issuance
stemmed from heightened
global liquidity, a benign market
backdrop, tightening credit
spreads and investors’ ongoing
search for yield – all of which
delivered near-perfect conditionsthroughout the calendar year.
Market participants, however,
do not expect such a strong
performance next year.
“There are some potential
obstacles that could prevent
further growth in 2018,” said
Paul White, global head of
syndication at ANZ. “The lack
of M&A activity and aggressive
pre-funding to lock in historically
low rates and spreads may
restrict local corporate issuance,
while the cooling housing
market is likely to contain
Australian banks’ funding
requirements.”
White noted that reduced
offshore bank supply impacts
negatively on the cross-currency
basis swap, making Kangaroos
less compelling for sovereign,
supranational and agency issuers.
Australia has proved a reliably
deep port of call for US blue
chips this year with Verizonand Anheuser-Busch InBev
raising A$2.2bn and A$1.95bn,
respectively, from multi-tranche
sales, before Deutsche Bahn
set a new European corporate
Kangaroo standard with
October’s A$750m three-part
print.
However, the diversification
benefits of US corporate
Kangaroos may fall away if the
main advantage to overseas bond
raisings is removed, namely an
American corporate tax system
that deters the repatriation of
foreign profits and rewards
offshore issuance as a means of
funding dividend payments at
home.BUYSIDE PRESSURES
Factors that could limit issuance
also exist on the buyside.
Reduced global liquidity and a
fading Australian rates advantage
may impact offshore demand,which currently takes around
one-third of financial, corporate,
semi-government and RMBS
issues and about half of SSA
Kangaroos.
“With the Fed, ECB and other
central banks scaling back their
quantitative-easing programmes,
global liquidity is likely to fall,
while upward pressure on US
and European rates reduces the
relative value attractiveness
of Australian assets,” White
said. “One potential trigger is if
and when US rates rise above
Australian rates in absolute
terms.”
A declining offshore bid is also
unlikely to be offset by a rapid
expansion in domestic demand.
Australia has the world’s fourth-
largest pension pool, but only a
fraction of those investments are
allocated to bonds.
Only behind the US, the
UK and Japan, the country’sNews