Foreign banks step up in Taiwan

[HONG KONG] Taiwan's ultra-competitive loan market, dominated by highly-liquid domestic lenders, is turning out to be an unlikely source of opportunities for international banks.

Mizuho Bank is the coordinator on a NT$28.5billion (S$1.29 billion) acquisition loan for Pou Chen Corp, the world's biggest footwear maker, in a rare instance of a Japanese bank leading a high-profile domestic currency loan in Taiwan.

The five-year loan, which will fund Pou Chen's buyout of Chinese sportswear retailer Pou Sheng International Holdings , follows a NT$90 billion acquisition financing for Advanced Semiconductor Engineering also with a foreign bank as lead - in this case Citigroup.

"We are seeing more competition from our overseas counterparts in cross-border acquisition deals as they have branches in Taiwan and they are more experienced in this field, and sentiment is quite positive," said a senior loan manager at a top-tier Taiwanese state-owned bank.

On Pou Chen's loan, two other Japanese mega banks - MUFG and Sumitomo Mitsui Banking Corp - are also joint mandated lead arrangers and bookrunners along with Mizuho and Taiwanese lenders Bank of Taiwan, Bank Sinopac, CTBC Bank and Taipei Fubon Commercial Bank.

Mizuho has been a coordinator previously on domestic currency loans in Taiwan, but has not led an acquisition financing since 2014, when it coordinated a NT$5.05 billion facility for leasing firm Chailease Finance.

RARITY VALUE

Japanese banks are expanding overseas in search of higher yields than the ultra-thin returns on offer in Japan.

Pou Chen's five-year loan offers an interest margin of 50bp over Taibor and a top-level upfront fee of 12.5bp. MUFG and SMBC have also committed to ASE's loan, which offers an interest margin of 55bp over Taibor and a top-level fee of 30bp.

Both loans for Pou Chen and ASE come with pre-tax interest rate floors of 1.7 per cent, which is a far more lucrative proposition than most domestic loans in Japan's negative interest rate environment.

"It makes sense that Japanese banks are eyeing offshore deals for better returns," said the senior loan manager.

It is not just the Japanese lenders increasing their presence in Taiwan. Around a dozen of the 35 banks committing to ASE's giant financing are foreign lenders.

NT dollar loans are not known for paying juicy returns, given the flush liquidity in the banking system in Taiwan. Still, the blowout response to Pou Chen, with commitments totalling around NT$200 billion, shows the appeal of the borrower's strong credit profile and the loan's rarity value.

Pou Chen makes shoes for international sports brands including Nike, Adidas, New Balance and Puma.

Taiwanese lenders also welcome borrowers from the traditional manufacturing sector as an opportunity to diversify beyond the semiconductor industry.

"We see traditional manufacturing business as more stable than the semiconductor industry," said a second loan manager at a state-owned bank looking to take part in Pou Chen's financing.

The loans for Pou Chen and ASE total about US$4.1 billion - nearly half of the US$8.7 billion raised from M&A loans in Taiwan in the last four years. M&A lending peaked at US$5.4 billion in 2016.

"We are happy to see the increase in M&A and leveraged buyout transactions that create fresh net loan supply as we face excessive liquidity," said a third Taiwan-based senior loan banker.

REUTERS