Wednesday, 19 December 2018

Promise of cross-border riches

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Buyouts of US-listed Chinese firms to provide more funding opportunities. 

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Record loan volume in 2013 promises strong activity in Asia during 2014, as market momentum continues and M&A financings bolster deal flow. Already in 2014, Japanese alcoholic beverage manufacturer Suntory has energised the loan market with a multi-billion financing for its US$13.6bn acquisition of US spirits company Beam.

The purchase demonstrates the promise for Asian loan markets as regional companies indulge in cross-border acquisitions and raise debt funding.

Elsewhere, Japanese wireless carrier SoftBank is in talks to acquire a majority stake in wireless carrier T-Mobile US, which could cost around US$20bn, and some of the funding could come from loan markets.

Barely a couple of weeks into January and there are already a handful of big-ticket M&A financings. They include a HK$10bn (US$1.3bn) bridge for CLP Holdings to back its purchase of Castle Peak Power and Hong Kong Pumped Storage Development; a US$2.5bn 18-month bridge to Hong Kong billionaire Richard Li’s telecoms unit HKT, which is buying CSL New World Mobility; and a C$800m–$900m-equivalent 12-month bridge for Indian Oil Corp’s purchase of a 10% stake in Canadian shale gas assets.

These bridge loans are likely to be taken out by term loans, thereby presenting more opportunities for lenders – a trend that was very much evident in 2013 when the number of multi-billion dollar loans increased.

Buyout bonanza

Buyouts of US-listed Chinese companies, which have grown over the past couple of years, are expected to provide more funding opportunities.

“PE sponsor interest is strong for Chinese assets, and the debt markets have evolved to become supportive of offshore financing structures,” said Clayton Carol, head of debt capital markets and debt syndicate, Asia (ex-Japan) at Nomura.

The latest is Giant Interactive Group, the biggest buyout of a US-listed China company since Focus Media, which is expected to be funded by up to US$1bn in debt.

It represents four times leverage for a business that is asset-light and has no precedence of borrowing – a sign of how the Asian leveraged market has evolved.

“The Focus Media LBO was a major inflection point in the evolution of the ‘China offshore holdco’ structure. It has brought Chinese financial sponsor-led LBOs into the forefront and widened the universe of lenders that can take exposure to this type of financing,” said Ashish Sharma, head of loan syndication, Asia-Pacific at Credit Suisse.

Bouncing back

Traditionally strong leveraged finance markets Japan and Australia took a back seat in 2013, but activity is expected to increase in 2014.

“Australia will provide a lot of opportunities for M&A in the coming months, especially with regard to infrastructure assets which are coming up for sale. Leveraged finance activity should also pick up as financial sponsors look to put their funds to work,” said Benjamin Ng, head of debt syndicate and acquisition finance for Asia at Citigroup.

Also back on the radar are some geographies that have not seen much activity recently – South Korean security services firm ADT Caps has attracted interest from international private equity firms.

Prakash Chakravarti, Jacqueline Poh


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