Syndicated loan volume from Asia-Pacific, excluding Japan, fell for the second consecutive year in 2016 to a new three-year low of US$463.8 billion amid the global market volatility and an ongoing economic slowdown. This was 1.6% down from US$471.3 billion raised in 2015 and was the lowest annual figure since the 2013 volume of US$462 billion. Syndicated loans in the fourth quarter of 2016 alone slipped to US$103 billion year-on-year as fewer number of transactions were arranged during the period.

But amid the continuing decline in loan syndication volume in the region, local currency lending exhibited a rising trend, according to Thomson-Reuters figures. At the end of the third quarter of 2016, local currency lending reached US$45.6 billion through 202 deals, representing increases of 13.2% in volume and 14.8% in the number of transactions compared with the same period of 2015.

Of the total, US$10.2 billion were used for refinancing purposes, followed closely by US$9.3 billion in capital expenditure (capex). Sasan Power signed the largest refinancing deal in the third quarter of 2016 amounting to 111 billion Indian rupees (US$1.7 billion), or almost a quarter of the local currency loan volume during the period.

The largest local currency capex loan closed as a club between three Indonesian lenders in September. The state-owned electricity company Perusahaan Listrik Negara will use the funds from the 120 trillion rupiah (US$916 billion) deal for the construction of an electricity transmission network.

The attractiveness of local currency borrowings was underpinned by domestic currency easing measures adopted across the region, coupled with the US dollar appreciation and rising US dollar Libor rates.

In China, which dominates the loan activity in the Asia-Pacific, the onshore loan market has been well-supported by the easing measures implemented by the People’s Bank of China at the start of the year. At the same time, the renminbi depreciation and the rising US dollar Libor have discouraged many borrowers from raising or maintaining debt offshore and are instead borrowing in renminbi onshore.  

“What has been a tough year in the loan syndication market is not only the volume being down, but the shift in lending from major currencies into local currencies. This makes it harder for the international banks to compete,” notes a senior loan banker at a global bank. “But we’re still able to generate enough deals and earn revenues to meet our budget.”

Overall, China remained the largest loan syndicated market in the Asia-Pacific with a total volume of US$135 billion in 2016, or about 29.1% of the region’s tally. The overseas acquisition spree by Chinese corporates drove the activity with M&A-related lending from Asia surging almost 70% to US$80.8 billion, equaling the previous record set in 2007.

The Chinese borrowers, according to Thomson Reuters, raised a total of US$41 billion for M&A purposes, including a US$12.7 billion bridge facility to back the US$43.45 billion bid by China National Chemical Corporation for Swiss seeds and pesticides company Syngenta that set the record for the largest loan from Asia, outside of Japan.

In contrast to the strong M&A-related activity, infrastructure and project financings dropped to US$68.5 billion in 2016 from US$79.3 billion in the previous year.