Worst bond market ever pushes Asian firms into short-term loans

Global bonds have slumped into their first bear market in a generation, ending a four-decade bull run. PHOTO: REUTERS

HONG KONG - Asian companies are increasingly resorting to loans, some just months in length, as the worst rout ever in bonds complicates access to the more secure longer-term funding market.

Among companies that had been active bond issuers in Asia, the number seeking short-term loan facilities this year has increased 30 per cent to 40 per cent, according to Mr Christophe Cretot, head of debt origination and advisory, Asia-Pacific at Credit Agricole Corporate and Investment Bank. That range is based on loans arranged by the bank in the region.

"We have seen that in markets such as Singapore, Indonesia and China where issuers with maturing bonds in the next three to six months are looking for facilities of nine to 12 months to buy some time before issuing again," he said.

Those getting loans of no longer than one year in 2022 include Indonesian energy company Pertamina and Chinese miner Tianqi Lithium, according to data compiled by Bloomberg.

Global bonds have slumped into their first bear market in a generation, ending a four-decade bull run as central banks tighten policy to fight inflation, and Asia is no exception. But what makes the region stand out is that in addition to those broader risks, Asia's credit market has also been grappling with a property debt crisis in China that has effectively shut out many developers from selling dollar bonds.

Mr Cretot said some Chinese borrowers are shifting on a more permanent basis from issuing notes to getting bank loans as bond sales have slumped amid record defaults. Builders have been among those turning to bank facilities while not selling offshore notes this year.

Investment-grade developers Longfor Group Holdings and China Vanke have sought loans denominated in Hong Kong dollars, while Agile Group Holdings secured a loan with 20 per cent interest rate in June and conglomerate Fosun International upsized a refinancing deal to the equivalent of US$875 million (S$1.23 billion). 

Public data on short-term loans are not readily available given they are mostly done on a bilateral basis.

But Hong Kong-based bank arrangers, asking not to be identified as they are not authorised to speak publicly, said that more Asian borrowers are turning to such facilities as they face debt maturities amid difficulties selling new bonds. Some also want to avoid the long approval process typical of longer loans beyond three years.

"Unlike bond issuance targeting investors, banks are more likely to support clients during the rainy days to maintain relationships," said Natixis senior economist Gary Ng. "For borrowers, it is about where they can get liquidity under the turn of the monetary tide, and it is simply easier to borrow from banks. As such, the seesaw between bonds and loans will stay and favour the latter in the short run." BLOOMBERG

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