Spinning the Rolodex no longer cuts it for archaic loan sales

Singapore

IT HAS been a game of "calling your 10 best friends". A US$3.25-trillion global market makes up the secondary loans space, but it continues to operate in a largely archaic, low-tech environment.

This space is an important one - banks sell off loans to one another to deleverage their balance sheets if the returns on the loans look poor relative to their cost of capital.

And some ex-bankers, tired of the old clubby way, want to disrupt this market out of Singapore, even as supply in certain loan markets has been tightening.

A new solution will soon come from PrivEx, an online exchange to facilitate the trading of corporate loans among financial institutions.

Licensed by the Monetary Authority of Singapore (MAS) as a recognised market operator, PrivEx wants to cut the processing time, and improve price discovery and liquidity. These come with the help of data analytics.

These features are not present in the usual approach of dealing loans, which still depends on bankers manually dialling through their contact lists, said P-Wa Tang, PrivEx's chief executive officer and co-founder.

"Let's use an analogy. Say, you want to sell your house. Will you prefer your agent to call his friends and ask, 'would you want to buy, would you want to buy, would you want to buy'? Or will you prefer him to advertise and get as many bidders as possible, so as to get the best price?"

The current approach wastes time, creates mispriced trades, and is not transparent, noted the former banker, who has worked in loan sales, debt capital markets and distressed trading.

Asked why the secondary loans market has lagged in digitising, relative to other banking functions, PrivEx points to resistance to change.

"Loan bankers may think, 'why do I need to change when I will still get paid by carrying on with the old-fashioned approach'," Mr Tang said.

Sean Liu, PrivEx's head of Southeast Asia and South Asia, thinks the platform has an edge as an independent, licensed entity that is managed by experienced ex-practitioners.

Some 20 financial institutions across Asia and the Middle East will first adopt PrivEx when it officially launches in the third quarter. Singapore's DBS and UOB are among them.

Refinitiv estimated the global loan value to be at about US$3.25 trillion, and syndicated loan volume in Asia- Pacific (excluding Japan) to be about US$435 billion. Mr Tang said PrivEx plans to corner at least half of Asia's market eventually.

The platform will list a variety of corporate loans, including leveraged loans, acquisition loans, distressed loans and working capital loans.

PrivEx said that its platform, which deploys algorithms, will have deals listed and traded in under 15 minutes - down from an estimated 19 man hours under current protocols.

Real-time prices will be reflected on a dashboard, which will allow buyers and sellers to negotiate prices instantaneously and anonymously. Once there is a match, parties enter into a legally binding trade.

PrivEx intends to offer its services for free for a start, but will introduce fees down the road for successful transactions. "It all goes back to one thing - creating liquidity. We have heard so many times that the loans market is not liquid. If there is no standardised trading platform, your non-bank institutional investors are not going to come in," said PrivEx's Hong Kong-based adviser Clarence T'ao. Mr T'ao is an ex-banker who previously held roles in Chase Manhattan Bank, Citibank and BNP Paribas.

PrivEx's founding team started discussions with the MAS in April 2018, and was licensed in December the next year.