IFR Asia/LPC Evolution of Asian Loans Roundtable 2016: Steady progress

IFR Asia/LPC Evolution of Asian Loans Roundtable 2016: Roundtable participants Justin Crane Standard Chartered Justin Crane is global head of loan syndicate & distribution at Standard Chartered based in Singapore. Before joining Standard Chartered in February 2013, Crane was with Credit Suisse in Singapore and prior to that with Citigroup in Hong Kong. He started his banking career at Barclays in 1996, where he worked for 12 years in the United Kingdom and Asia. Kaili Jen CTBC Bank Kaili Jen is head of global structured finance at CTBC Bank in Singapore and has been in charge of origination and distribution of syndication and structured loans in the ASEAN countries and India since 2014. She joined the Taiwanese bank in 2006 and has worked in the Hong Kong branch before moving to Singapore in 2009. Augustine Lim BOC, Singapore branch Augustine Lim is senior executive director and deputy head of corporate banking 1 department at Bank of China, Singapore branch and oversees teams responsible for large local and global corporates, syndications, aviation finance and ASEAN regional business. He joined the bank in May 2012 and has 18 years of banking experience. Michel Lowy SC Lowy Michel Lowy co-founded SC Lowy, a privately owned fixed-income firm focused on high-yield and distressed bonds, loans, direct lending and special situations. Prior to founding SC Lowy in 2009, Michel led Deutsche Bank’s strategic investment group and built market-leading franchises in Asia, Japan and Latin America. Richard Monnington Prudential Capital Richard Monnington is managing director of Prudential Capital Singapore. He is responsible for the group treasury operations in Asia and is focused on investment opportunities in credit, mainly in senior secured loans. He began his career with Prudential Portfolio Managers in 1998 and worked at brokerage firm Instinet before joining PruCap in 2005. Koichiro Oshima MUFG Koichiro Oshima is head of investment banking for Asia and Oceania at MUFG. Based in Singapore currently, he has worked in investment banking, structured and project finance in different cities, including Tokyo and New York. He has more than 25 years of investment banking experience and started his career in corporate finance in 1989 with Sanwa Bank. Mike Samson Standard Chartered Mike is head of leveraged finance for ASEAN at Standard Chartered. He has 20 years of experience within structured debt, having a specific focus on leveraged loans, situational or event-driven acquisition financings and recapitalisations. Mike has led and been involved in a broad range of debt transactions, including many landmark deals in telecommunications and other sectors. Albert Yeoh UOB Asset Management Albert Yeoh is currently the portfolio manager for the Asia CLO. In his previous job at a credit fund he was actively involved in research and investment of high-yield corporate bonds, loans and convertible bonds in Asia. He has also worked at Fitch Ratings with responsibility for rating synthetic collateralised debt obligations and cash flow collateralised bond and loan obligations in Asia. Prakash Chakravarti Asia Pacific Bureau Chief, Basis Point/LPC Roundtable chair To view all special report articles please click here and to see the digital version of this report please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.

IFR ASIA/LPC: A warm welcome to everyone and a very good afternoon. Thank you for taking the time. Justin, could you please give us a brief overview of the year so far in syndicated loans for this business? Do you find it has changed and become more challenging? Justin Crane, StanChart: Yes, I think it has certainly become more challenging, especially for a bank that is a significant player in the market if loan volume drops by 9% year-on-year and deal count drops by 11%. And this is based on what was already a depressed year on 2015. We also shouldn’t discount the impact of a surge in volumes of local currency loans. Over the last two years local currency loan volumes have accounted for around 60% of the total, which makes it difficult for most international banks to compete in domestic markets. There may be different funding costs, but more importantly different credit standards that you just simply cannot participate in those markets as you would want to. Koichiro Oshima, MUFG: I completely agree with Justin. It’s not just the volumes, number of deals, but also I think pricing in general has fallen significantly year-on-year. It’s become very difficult to hit your goals in terms of fee income nowadays. IFR ASIA/LPC: Augustine, as one of the rising lenders in the market place, what are your thoughts? Augustine Lim, BOC: The Singapore branch of Bank of China has been around for 80 years. We come with a different perspective. We are beginning to play more in local currencies and adjusting to different credit standards. We look at ourselves as a very important financial hub and facilitator for Chinese companies expanding overseas. They prefer to borrow in US dollars, but sometimes there are alternatives. We are actually comfortable lending to these credits as we know them well and we can also share this knowledge and our experiences with our partners in Singapore and the rest of the world. We have access to the core management at these Chinese corporates and we can act as a bridge between them and other lenders outside China. We can educate both sides. Chinese borrowers can understand how banks here assess credit, pricing structures and the rules of the game. We are here to support the companies coming out and also for businesses going into China, so it’s a two-way system. IFR ASIA/LPC: Justin, do you see Augustine’s bank and others as partners or more as competitors? Justin Crane, StanChart: Both I would hope. Yes, at times partners and at times competitors. IFR ASIA/LPC: Is that how you address the challenge in terms of the growing share of the domestic currency market? Justin Crane, StanChart: No, when I referred to domestic markets, a good example today would be Indonesian rupiah. Obviously for the dollar deals that we would have done for a lot of our Indonesian clients, the preference today, as it should be bearing in mind what base rates are doing onshore plus the dollar appreciating, would be to opt for a local currency financing. Now that financing may look very different to what we would expect out of an international currency financing. So that was really my point. Similarly the peso market in the Philippines as well. IFR ASIA/LPC: Kaili, CTBC Bank takes a very selective approach when it comes to lending outside Taiwan. How do you see the market evolving? Kaili Jen, CTBC: We are a niche player in the regional market given that we have not had a long presence and don’t have a big customer base like Standard Chartered. We are very active in leveraged buyout financings. We pay more attention to the relationships with private equity firms and financial investors, which we are comfortable with. Our approach is to focus on top-tier companies and our credit appetite is largely concentrated on those in each country. As far as liquidity among Taiwanese lenders is concerned, this year is special because, as Justin mentioned, the appreciation in the US dollar has prompted borrowers from some countries like India and Indonesia t

IFR ASIA/LPC: Richard, do you agree with Michel on the pricing that you see in secondary markets on loans? Do you buy them at those kind of levels and are they attractive? Richard Monnington, PruCap: I might answer this in two ways because my book tends to focus on high-grade. So if we are seeing underlying names that are starting to show signs of distress they might be interesting, but they wouldn’t really suit our portfolio. That’s not to say that they wouldn’t be attractive to other pools of capital within our group. I would agree with what Albert and Michel have been expounding. If you are looking at more esoteric or second-tier credits or credits that are in difficulty, there is a more well-priced supply out there then you will find in the high-grade, syndications space. Large institutions are becoming more active in that space. We talked about leveraged loans, direct lending probably for those second-tier clients, even distressed credits. Large institutions that have been active in those markets in Europe and in the US are starting to look at the Asian markets more and more. Now, again as you would attest, it’s not an easy thing to crack. These are intensive assets to look at and manage. You need to have knowledge on the ground, understand sectors and the credits very well. Although we’re starting to see interest from those institutions, I don’t think it’s really come yet in the form that it will do over the next two to three years. We have been fortunate within the group to have strong fund managers across all of those sectors, but it will take us time to build up that capability in the region. That’s where I really do think that the institutional investment businesses can start to have a very positive impact on the investment market. Be it in that space or be it in areas that are closer to what I do, which will be providing liquidity that is a little different to what the banks will be able to supply. International managers are beginning to provide longer tenor than the banks would. We have seen that in Australia, for example, where international managers have provided 10-year money into transactions over there. My overriding point is it’s going to take time and care for institutions to build up the types of resources that are necessary for us to bring the kind of firepower that we could have. Looking across the investment pools, the liability pools of a large insurers business like ourselves, we do have pools of capital that have a very, very broad investment risk appetite. We can be very, very compelling to the underbanked areas in the markets that we see today. IFR ASIA/LPC: That raises questions on pricing because you focus on investment-grade credits and pricing in Asia is extremely low for those kind of borrowers. So isn’t that challenging in itself for you to operate in this market? Richard Monnington, PruCap: Yes. For us, it’s acknowledging that there are transactions that we should just stay away from, where the relative returns that we will see elsewhere in the globe are more compelling and we will just deploy the balance sheet there. There are other areas where because we are capable of covering the sorts of transactions that do attract better pricing which the bank liquidity isn’t currently chasing. We tend to be one of a very few in a particular transaction. We tend to invest in fairly substantial size. That gives us some access to the borrowers and helps us understand their business plans, the challenges they face in delivering those plans and we can take a view on it. That gives us more capability to go where some of that bank liquidity isn’t happy to go and therefore still get reasonable relative returns as a result. I see the future for larger institutions is being able to access those pools of capital that I talked about in those different areas of risk appetite. There is nothing to say that a large insurance business shouldn’t be able to provide short to medium-term debt and some mezz and even some m