a 33.3% stake in DLF Cyber City
Developers, a DLF subsidiary,
for Rs89bn.
The syndicate for the QIP
has not yet finalised but ICICI
Securities, Kotak, JP Morgan and
Morgan Stanley are said to be
working with the company.
For its part, the sponsors of
Blackstone and Embassy Group-
backed Embassy Office Parks
are still finalising the assets
that will be part of the REIT.
A Mumbai-based fund
manager said the REIT has been
indicating a yield of around 7%.
Last year two infrastructure
investment trusts (InvITs)
completed IPOs at an implied
rate of return of 10.8%–12%.
However, bankers said the
growth potential of a REIT is
much higher and, as a result, it
could offer a lower yield.
“I would still think they need
to offer around 8% to factor for
the novelty of the instrument
in India,” the fund manager
said.
Morgan Stanley and JM Financial
are working on the IPO.
For daily news stories
visit http://www.ifrasia.comin April.
Its earliest significant debt
maturity is in 2022 when
a US$410m 7% bond falls
due. The 2022 bonds were
bid at a cash price of 93 on
Thursday, implying a yield of
9.4%, having traded at par in
January.
Lippo Karawaci could also
consider trimming its stakes
in the two REITs to raise
money, but that would reduce
its control over them and
might make it harder to sell
properties to them.
Lippo Karawaci was late
filing its 2017 accounts, partly
due to clarifications it needed
to provide to the domestic
regulator about a planned
rights issue at its 54%-owned
subsidiary Lippo Cikarang.
Filing more than 90 days after
the end of the year would have
constituted an event of default
if holders of at least 25% of its
bonds had given written notice
to the company before it had
had published the annual
financial statement.
China’s loan tenors shrink
Loans Foreign lenders face soaring costs in the inter-bank marketBY YAN JIANGSyndicated loans in the onshore
Chinese market are getting
shorter as foreign banks seek
to reduce risks and price-
sensitive borrowers opt to limit
maturities.
Several companies have
turned to one-year borrowings
since the second half of last year,
in a departure from the three-
year maturities that have been
standard in recent years.
The latest is a Rmb500m
(US$79m) facility launched in
late April for GREAT WALL GUOXING
FINANCIAL LEASING. Other borrowers
in the market with similar tenors
include MERCHANTS UNION CONSUMER
FINANCE and MINSHENG FINANCIAL
LEASING, which are seeking
Rmb600m and Rmb500m,
respectively.
While shorter maturities often
point to credit concerns and a
dip in risk appetite, bankers say
the shift is also due in part to
rising funding costs, a result of
China’s move to tighten liquidity
to limit credit growth.
“When we tried to charge
more, price-sensitive borrowers
opted for shorter tenors,” said
a senior banker in Shanghai.
“This also makes us feel more
comfortable. Who knows what
will happen in three years’
time?”
Adding to the uncertainty,
China is mulling further
regulations against thousands of
leasing firms, which are frequent
borrowers in the syndicated loan
market. Detailed rules have yet
to come out.
Two-year deals are also
increasingly replacing three-year
facilities.
Two weeks ago, Geely unit
GENIUS AUTO FINANCE made a quick
return for a loan of at least
Rmb780m with a two-year
tranche A and a one-year tranche
B. The borrower had raised
Rmb900m less than four months
earlier through a deal with a
similar structure.
UNITED PHOTOVOLTAICS (CHANGZHOU)INVESTMENT and HUARONG TIANZE
INVESTMENT are also in the market
with Rmb500m and Rmb1bn
two-year facilities, respectively.
Bankers say many deals with
two-year maturities pay the same
as three-year transactions as the
benchmark PBoC lending rates
for onshore loans are the same
for two and three-year tenors,
giving them no incentive to take
longer-term risk.SOARING COSTS
Foreign banks, which have
limited renminbi deposits,
are especially susceptible to
higher rates in the interbank
market. While the PBoC rate
for one-to-five-year loans has
been unchanged at 4.75% since
October 2015, rates have spiked
in the interbank market.
The three-month Shanghai
interbank offered rate (Shibor), a
gauge for foreign banks’ funding
costs in China, hit 4.9133% at
the end of last year, up 162bp
in 12 months. It has since been
on a downward track, falling to
3.993% on May 3.
However, foreign banks
remain cautious and anticipate
their financing costs to stay high
because China is expected to
keep deleveraging its economy
and shutting down shadow-
banking activities to reduce
systemic risks.
All-in pricing based on PBoC
rates is much richer than it was
18 months ago.
Great Wall Guoxing Financial
Leasing’s deal is offering a top-
level all-in pricing of 133% of the
PBoC rate via an interest margin
of 115% of the PBoC rate for the
one-year bullet loan.
In August 2016, its peer
Haitong UniTrust International
Leasing paid only a top-level
all-in pricing of 100% of the PBoC
rate based on a margin of 93% of
the PBoC rate for its Rmb910m
dual-tranche facility with one
and three-year tenors.
The PBoC rate for one-year
loans has been at 4.35% since
October 2015.Given the ongoing mismatch
between the PBoC rates and their
funding costs, some banks are
becoming innovative.
“If possible, we’d like to have
a term in the loan agreement
which will allow interest margin
adjustments in tandem with
Shibor fluctuation,” said a senior
banker at a Taiwanese lender.
Merchants Union Consumer
Finance’s debut Rmb1.15bn one-
year bullet signed last October
was the first deal priced over
Shibor and syndicated among
foreign banks. It offered a top-
level all-in pricing of 115bp
based on a margin of 100bp over
the one-year Shibor. Fubon Bank
(China) was the sole MLAB.
In February, Hana Bank
(China) priced Minsheng
Financial Leasing’s Rmb500m
one-year bullet at an all-in
pricing of 95bp over the one-year
Shibor.NEW ECONOMY
The shorter tenors are also a
protection against fresh risks
as foreign banks have to lend
to unconventional borrowers,
including consumer finance
companies, amid lower deal flow.
China’s loan volume tumbled
48% year on year in the first
quarter to US$17.12bn. This
was partly because traditional
borrowers were struggling as
China shifts its economy away
from investment and exports,
while trade protectionism is on
the rise.
Meanwhile, start-ups in sectors
such as technology, consumer
products, electric vehicles and
healthcare are blooming under
favourable government policies.
“A lot is happening and
uncertainties are rising,” said
a third source based in Beijing,
who just left the banking
industry to work in a financial
leasing company.
“Banks have to be brave and
embrace the new economy, so
it’s better to start with a one-
year loan to reduce risks while
building up relations.”