US DOLLAR loan sales for the first half across Asia excluding Japan tumbled to their lowest since 2010 as higher borrowing costs in the greenback deterred companies, who opted for other financing routes or looked to defer such plans if possible.
The amount of loans, which excludes bilateral facilities, declined 44 per cent to about US$45.5 billion in the period, the lowest since 2010 when US$34.9 billion of deals were done in the first six months, according to data compiled by Bloomberg. The figure is in stark contrast with global US-currency loan sales, which jumped 37 per cent to nearly US$2 trillion in the first half of 2024, the highest in three years.
The divergence in the region’s US dollar loan volumes from the global trend highlights a pullback by Asian borrowers from US-currency funding because of higher interest rates on the one hand and also the availability to tap alternative debt-raising options such as local-currency bonds and bank financing.
The interest-rate divergence in local currency and US dollar funding makes the effective cost of borrowing domestically more attractive, even for companies with US dollar income, said Birendra Baid, Asia loan syndication head at Deutsche Bank in Singapore. Also, “local currency capital markets are maturing in certain countries such as India, thus opening additional options for the borrowers”, he said.
The risk-free Secured Overnight Financing Rate – or SOFR – which is the reference for most of the deals in Asia, shot up to over 5 per cent now from near zero in 2022 as the US Federal Reserve unleashed one of the steepest interest-rate hiking cycles in a generation.
While the US benchmark interest rate remains at 5.5 per cent, policy rates across major economies in Asia range from around zero in Japan to as high as 6.5 per cent in India and the Philippines. The key rate in China, the world’s second-biggest economy, is 3.45 per cent.
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That has propelled companies such as Thailand’s largest mobile phone operator True to venture into alternative markets in a bid to cut financing costs as US dollar interest rates remain elevated. The firm is marketing a maiden 109.9 billion yen (S$924 million) sustainability-linked yen-denominated loan.
Borrowers across Asia are also queueing up to tap bond markets, especially in local currencies, mainly because of the rate differential but also because of fewer collateral requirements and more liquidity.
Total corporate bond issuance across the Asia-Pacific in all currencies has surged to US$1.3 trillion this year, with sales of local-currency debt by companies hitting a record for the first half, Bloomberg-compiled data showed.
Still, bankers such as Baid expect a pickup in loan deals in the second half after prospects for a US interest-rate cut improved.
“Private equity activity is also expected to pick up, improving financing deal flow,” he said. “China is also showing sign of bottoming out with the pipeline steadily building up.” BLOOMBERG