no panacea for the lending market in Asia

Asian leveraged bankers are hoping for increased business opportunities this year. Their main focus is rising tensions between the United States and China, and the bill passed by the U.S. government in May requiring foreign companies to follow U.S. auditing standards, which could lead to an increase in the number. Chinese companies exiting American stock exchanges. .

There are already signs of this. New York-listed Chinese online marketplace 58.com was shut down by a consortium earlier this year, as Tencent Holdings plans to buy out Sogou and remove the search engine from the New York Stock Exchange. .

The loan market will welcome any action proposed by these offers, having been hit hard by the Covid-19 pandemic this year. So far in 2020, 176 transactions denominated in US dollars, euros and Hong Kong dollars have been announced or concluded in Asia excluding Japan, worth $ 97 billion. The figures for the same period last year were 327 transactions worth $ 139 billion, according to Dealogic.

Bankers said GlobalCapital Asia they hope the write-offs could be a good source of loans before the end of the year. But their optimism may be unfounded.

For starters, there is a big question as to whether enough radiation will take place this year. Many acquisition-related transactions have been suspended or canceled because sellers and buyers could not come to an agreement on prices. The same is true for privatizations.

A credit banker who was recently in talks with two Chinese companies over possible privatization deals said the two deals were put on hold due to valuation spreads.

While buyers wish to take advantage of current market conditions to acquire assets at a lower price, sellers are hoping for a rebound once the pandemic subsides, making them reluctant to part with their businesses at lower valuations.

That’s not all. Even if privatization gets the green light, it will not necessarily translate into opportunities for international banks.

Of course, there will be enough business to shop around if top names like Alibaba Group Holding or Baidu make loans for their write-offs from the United States. In such cases, their fundraising will be large enough to warrant a large group of banks – both international and Chinese – in the union.

But many other companies, which plan to list on the continent afterwards to take advantage of the higher valuations in the domestic market, may opt for onshore financing to support their transactions.

For example, 58.com raised a $ 3.5 billion loan to support its delisting. But the loan was eventually granted by the Shanghai branch of the Shanghai Pudong Development Bank, which then syndicated it to a group of onshore banks.

While this does mean that international banks could lose some of those transactions, it does set a precedent for borrowers worried about Chinese capital controls and restrictions on transferring money from home to overseas. Some bankers believe that if a business clearly explains the goals of its loan, it is likely that it will be granted permission to transfer money overseas.

This is essential because the competition for these mandates is intensifying between Chinese and international banks. The cost of funding is naturally one of the main considerations for businesses, which has given Chinese banks, especially the Big Four lenders, an advantage, due to their balance sheet prowess and ability to offer money cheaper.

This has already been evident in a number of business loans this year, where Chinese banks have offered aggressive pricing to beat their peers amid slowing transactions.

International investment banks will also face an additional headache: uncertainty over companies’ plans to go public. For the most part, companies likely to delist in the United States are preparing possible IPOs in China or Hong Kong. But the timeline can be difficult to pin down, given the lengthy approval processes to launch their lists.

This means that banks may be forced to provide long-term funding rather than short-term gateways to support these write-offs, which may not appeal to everyone.

The buyout loans will come in, albeit at a much slower pace than bankers anticipate and on terms that will not be favorable for everyone. Leverage financial bankers should keep their expectations in check.

Priscilla C. Carnegie