China outbound M&A seen driving loans rebound

Hong Kong

OFFSHORE loans in the Greater China region are expected to climb this year, driven by an increase in mergers and acquisitions, after falling to their lowest level in five years.

The coronavirus pandemic weighed on demand for loans in 2020, with the value of Greater China offshore club and syndicated loans dropping 31 per cent to US$96.4 billion from a year earlier. China offshore loans, which traditionally comprise the bulk of Greater China volumes, declined 40 per cent to US$45.2 billion.

"I am cautiously optimistic that loan volumes in Greater China will pick up," said John Corrin, head of corporate finance, international, at Australia & New Zealand Banking Group Ltd. "I expect the increased activity will take a while to emerge, most likely around the beginning of the second quarter."

The improved outlook comes as China became the world's only major economy to report growth last year and is expected to deliver an even stronger showing in the coming quarters, thanks to robust exports and ramped-up infrastructure spending. As Chinese firms get back on their feet, the banking industry looks set to enjoy an outburst of pent-up demand for overseas business transactions.

Mr Corrin said a pick-up in global M&A volume will help spur an increase in loans relating to such deals as well as to private equity. China is set to be a key market with the biggest influence on activity in the Asia Pacific region, he added.

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About US$26 billion of China outbound M&As have been announced or proposed since a year ago, according to Bloomberg data. The biggest deal among them is State Grid Corp of China's US$3 billion acquisition of a 96 per cent stake in a Chilean power utility. Other deals under discussion include Alibaba Group Holding Ltd's potential US$3 billion investment in Grab Holdings Inc and China National Petroleum Corp's potential bid for part of BP Plc's stake in an Omani gas field that could fetch about US$1.5 billion.

"We are already seeing more outbound Chinese M&A activity, especially into Europe and we expect to see an increase this year," said Adnan Meraj, managing director, co-head of Asia-Pacific syndicated and leveraged finance at BofA Securities. BLOOMBERG