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Australia corporate loans surge, defies Asia slump

[SYDNEY] Australia's loan volumes jumped 11.4 per cent on year to US$10.97 billion from 25 deals in the first quarter of 2016, as companies rushed to refinance maturing debt, in sharp contrast to the subdued volumes seen in other major Asian markets.

The strong Australian loan market stands out when compared with Asia, which suffered a 38.7 per cent plunge in volume to US$68 billion in the first quarter.

Australia takes third spot in the region after Hong Kong and China, accounting for 16.2 per cent of regional volume, according to Thomson Reuters Loan Pricing Corp data.

The increased loan volumes bode well for the rest of the year with banks upbeat a number of large state privatisations coming up. "There are a lot of infrastructure deals in the pipeline .. the momentum in M&A activity will continue from last year." said Aziz Dean, Westpac Banking Corp's head of loan markets in Sydney.

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New South Wales, fresh from selling state transmission company TransGrid for A$10.3 billion (S$10.7 billion), has kicked off the A$12 billion sale of state energy distributor AusGrid.

Victoria state's Labor government is also moving ahead with the A$6 billion privatisation of the prized Port of Melbourne.

Corporate-led M&A activity, however, can go quiet ahead of an election, according to Westpac's Dean, as companies need political certainty to make such key decisions.

Australia appears poised for an early election on July 2 after Prime Minister Malcolm Turnbull announced earlier this month he would force a vote on union reform bills that is likely to be blocked in the Senate by minority parties, triggering a rare election for every seat in both houses of parliament.

In addition to healthy loan growth, pricing in Australia is on the rise - albeit at a slower pace than the rate of increase in funding costs experienced by the four domestic majors.

On Thursday, Australia and New Zealand Banking Group raised a five-year A$ bond at 118 basis points over three-month bank bill swap rate, against 80 basis points last year. "The cost of funding for domestic banks is going up faster than the ability to increase loan spreads," said Mr Dean. "This must eventually mean that banks will have less capital to deploy." Borrowers can expect to pay more if the major banks' funding costs continue to rise.

"Australian banks have been disciplined about pricing," said John Corrin, ANZ's head of loan syndications in Hong Kong.

REUTERS

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