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Australia loans plunge 25% in 2015 to US$79b

[SYDNEY] Australian loan activity plunged by 25 per cent in 2015 to US$79.34 billion, from US$106 billion in 2014, according to Thomson Reuters Loan Pricing Corp data, although a more buoyant M&A market led to a better quality crop of loans.

A number of refinancings also were completed ahead of time. "Overall, 2015 has seen lower volumes but higher-quality transactions. As a portion of deal volume, M&A financing has been higher, at around 25 per cent, which is up on 2014," said Robin Dutta, head of loan syndications Australia at Australia & New Zealand Banking Group.

The pipeline in 2016 is promising with multi-billion dollar sales of two energy distributors in New South Wales and ports in Melbourne and Western Australia. Momentum from the corporate sector is also expected to continue as companies keep expanding through acquisitions amid a steady economic outlook.

"If the outlook continues to be OK and corporate balance sheets are in reasonable shape, there will be reasonable corporate activity," said Todd Langsford, head of leveraged & acquisition finance and loan origination for HSBC in Australia.

In 2015, M&A-related financings from the energy, resources and telecom added spice to activity.

A A$5.5 billion (S$5.65 billion) loan for the Hastings Funds Management-led consortium's A$10 billion-plus bid for New South Wales state's transmission company TransGrid was the highlight of the energy sector.

Notable deals in the resources sector included a A$855 million acquisition loan - the largest syndicated deal in the gold sector during the year - to back gold miner Evolution Mining's acquisition of multiple assets.

Also, mining giant BHP Billiton raised a US$1.5 billion loan to capitalise the spin-off of South32, which housed its aluminium and manganese units.

The telecom sector saw consolidation as rapid advances in technology and the importance of scale made mergers more compelling, underpinned by a A$2 billion loan for TPG Telecom to buy internet provider iiNet and refinance debt in the two companies.

The refinancing pipeline is also expected to be healthy with over US$62 billion of loans maturing in 2016, according to Loan Pricing Corp estimates,


In 2016, companies are likely to see higher loan margins as increased borrowing costs for Australia's major banks start to bite.

The majors have seen their wholesale costs jump by 20 basis points since August. The current clearing rate for a domestic five-year senior unsecured bond for a major bank is 108 basis points over bank bills swap rate.

"The two main factors that will drive pricing higher will likely be supply of credit and bank funding costs we have already seen pricing increase 10bp-15bp over the last four-to-six weeks," said Stephen Boyd, head of corporate debt markets origination at National Australia Bank. "There is a lot of capital out there to put to work for the right transaction."