Syndicated lending in Asia Pacific (ex-Japan) plummeted to a 12-year low in the first quarter of 2024, but with increased visibility on the direction of interest rates, a growing sense of optimism among loan bankers suggests the market will stage a recovery from the trough. Loan volumes in Asia Pacific (ex-Japan) dived 48.8% to US$83.83bn in the first three months of 2024, compared to US$163.67bn in the same period last year, while the number of deals also dropped almost by half to 262 this year from 503 transacted a year ago, according to LPC data. With uncertainty around interest rates gripping the financial markets, borrowers deferred their refinancing plans, resulting in slower origination of loans at the end of last year and reduced volumes in the first quarter of 2024. Taiwan emerged as the only major market in the region to achieve growth in lending volumes, with a remarkable 60.9% year-on-year jump to US$17.59bn in the first three months of 2024. All other major markets – Australia, China, Hong Kong, India, Japan and Singapore – registered significant declines. Lending in Japan, where end of March marks the close of the financial year, was quite subdued with a mere US$39.92bn-equivalent raised, representing a steep year-on-year fall of 48.8%, compared with the US$78.03bn transacted in the first three months of 2023. On March 19, the Bank of Japan lifted its short-term rate to around 0%–0.1% from minus 0.1%, the first increase in 17 years and bringing the era of negative interest rates to an end. The move though came late and impacted demand for funding from Japanese borrowers. “Originally, there were funding demands to lock in interest rates based on the assumptions of the exit from negative interest rates by the end of 2023,” said Takayuki Ishiwatari, joint general manager of the debt finance department at Sumitomo Mitsui Banking Corp. “However, the timing was delayed until this March, and long-term interest rates had also stabilised. Therefore, many borrowers felt they did not need to rush into raising funds.” Loans also took a hit in Japan as borrowers took advantage of favourable conditions in the bond market. According to Koji Tanaka, head of the syndication department at MUFG’s solution product division, corporate bond issuance in the financial year ending this March was stronger compared with the previous year when borrowers had relied more on loans for funding. “Many borrowers which had difficulty raising corporate bonds in the last financial year took advantage of the strong bond market this year,” he said. China remained the largest market in Asia Pacific, but suffered a 72.4% year-on-year fall to US$23.69bn in 2024. The country’s overall economic recovery from the coronavirus pandemic was slower than many had expected, while growth also faced headwinds from a persistent debt crisis in the real estate sector. Surprisingly, Australia and India, the two markets that are amongst the biggest beneficiaries of the diversion of capital from China, also saw declines in lending, plunging 38.4% and 69.1%, respectively, to US$5.79bn and US$2.42bn. Hong Kong and Singapore posted weak quarterly loan volumes of US$23.6bn and US$6.69bn, falling 14.6% and 45.9% year-on-year, respectively. Peaking rates A day after the BoJ’s action – on March 20 – the US Federal Reserve signalled its intent, keeping its key interest rate unchanged at 5.25%–5.5% and sticking to its forecast of three rate cuts this year despite signs that inflation may stay high for longer. Nonetheless, borrowing costs have remained elevated and gaps in valuation expectations persist, as a result of which M&A and leveraged buyout activity took a beating in Asia Pacific. M&A-related financing shrunk 12.2% year-on-year to US$6.48bn in the first quarter of 2024. The largest acquisition financing completed in Asia Pacific in the first quarter was a Rmb15bn (US$2.08bn)
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