Skip to main content

Lenders look to Belt & Road

Reuters Staff

* Loans: Infrastructure initiative seen driving growth amid M&A slowdown

By Yan Jiang

HONG KONG, May 11 (TRLPC) - Chinese loan bankers are pinning their hopes on President Xi Jinping’s Belt and Road initiative in search of an alternative growth engine amid a regulatory squeeze on outbound acquisitions.

Chinese companies made acquisitions worth a total US$8.8bn in Belt and Road countries last year, commerce ministry data show, an increase of 32.5% over 2016.

That rapid growth contrasts with the broader market for outbound Chinese acquisitions, where tougher regulatory scrutiny dragged non-financial investments down by one third in 2017.

“After some hard work in the past few years, we’re building up a bigger pipeline of projects along the Belt and Road countries,” said a senior banker in Beijing. “Activities there are not affected by the new M&A rules.”

China is drafting new rules to regulate foreign investment by state-owned enterprises, after introducing similar measures for privately owned enterprises and investment funds.

It follows a broader regulation on outbound investments from the National Development and Reform Commission that came into effect on March 1. The new regulation brings greater scrutiny over overseas acquisitions of more than US$300m, adding to the restrictions NDRC had announced last August on Chinese outbound investment in real estate, hotels, cinemas, the entertainment industry and sports clubs.

The tightening, which first started in late 2016, has led to a fall in the number of overall Chinese outbound M&A deals worth more than US$1bn – to 89 in 2017 from 103 in 2016 and a peak of 114 in 2015, according to PricewaterhouseCoopers.

Overall Chinese non-financial outbound investment fell 32% in 2017 to US$124.6bn, the country’s commerce ministry said in February.

The slowdown has taken its toll on M&A-related loans from Asia, which slumped 54% to US$5.13bn in the first four months of 2018 from US$11.15bn in the same period last year. The 2017 tally was already 52% down on US$23.41bn in the first four months of 2016, according to Thomson Reuters LPC data.

The drop in Asian event-driven financings bucked a surge in global M&A lending to US$623bn up to the end of April, closing on 2017’s full-year tally of US$884bn.

While the Belt and Road initiative provides other lending opportunities through infrastructure projects or acquisition financings, foreign lenders cannot match the appetite of their Chinese counterparts and, as a result, are largely shut out of this segment. Most of the lending from Chinese banks for Belt and Road projects is in the form of bilateral or club deals and long-term in nature.

For instance, Chinese lenders are expected to take up the bulk of a US$1.8bn 27-year project financing for the construction of Dubai’s Al Maktoum solar park. PRICING COMPRESSION Another side effect of the slow M&A pipeline has been pricing compression due to fierce competition between lenders.

ADVERTISEMENT

SCROLL TO CONTINUE WITH CONTENT

Despite concerns on low pricing after it was launched in mid-February, a €3.05bn (US$3.8bn) loan backing Chinese automaker Geely’s roughly €3.25bn purchase of an 8.2% stake in Swedish truckmaker AB Volvo has been heavily oversubscribed. The deal pays a top-level all-in pricing of 185bp and 130bp over Euribor for the €2.1bn five-year term loan tranche and the €950m 12-month bridge, respectively.

Also, banks hungry for assets are increasingly happy to go it alone and quietly financing M&A deals worth a few hundred million US dollars if the credits are considered safe.

“Cross-border acquisitions have become smaller and sometimes riskier, which requires us to be more cautious,” said the Beijing-based banker. “We’re still busy looking at various opportunities, but the probability of closing a syndicated loan is much lower than before.” (Reporting By Yan Jiang; Editing by Luis Morais and Prakash Chakravarti)

https://www.reuters.com/article/lenders-look-to-belt-road/lenders-look-to-belt-road-idUSL3N1SI3MN

Comments

Popular posts from this blog

Balochistan to establish first medical university

https://www.dawn.com/news/1366135

The Newspaper's Staff CorrespondentOctober 25, 2017QUETTA: The provincial cabinet on Tuesday approved the draft for establishing a medical university in Balochistan.Health minister Mir Rehmat Saleh Baloch made the announcement while speaking at a press conference after a cabinet meeting.“The cabinet has approved the draft of the medical university which would be presented in the current session of the Balochistan Assembly,” he said, adding with the assembly’s approval the Bolan Medical College would be converted into a medical university.Published in Dawn, October 25th, 2017

China’s 'Digital Silk Road': Pitfalls Among High Hopes

https://thediplomat.com/2017/11/chinas-digital-silk-road-pitfalls-among-high-hopes/


Will information and communication technologies help China realize its Digital Silk Road?By Wenyuan WuNovember 03, 2017In his speech at the opening ceremony of China’s 19th Party Congress, President Xi Jinping depicted China as a model of scientific and harmonious development for developing nations. Xi’s China wants to engage the world through commerce but also through environmental protection and technological advancement. This includes Beijing’s efforts to fight climate change with information and communication technologies (ICTs) that it plans to export along its “One Belt One Road” initiative (OBOR). Xi may have ambitious plans, but could China be throwing up obstacles in its own way?In his speech, the Chinese president emphasized the need to modernize the country’s environmental protections. The Chinese state is taking an “ecological civilization” approach to development and diplomacy, with a natio…

Germany’s Siemens sets up Belt and Road office in Beijing

https://gbtimes.com/germanys-siemens-sets-up-belt-and-road-office-in-beijing
Germany’s Siemens sets up Belt and Road office in Beijingby Janne Suokas Mar 23, 2018 15:20 TRADEINVESTMENTBELT AND ROAD INITIATIVEGerman industrial and engineering group Siemens will set up a Belt and Road office in Beijing. surberFlickrCC BY 2.0
German industrial and engineering group Siemens will set up an office in Beijing to boost international cooperation under China’s Belt and Road initiative, the company said on Friday.The move will help strengthen Siemens’ cooperation with Chinese and international companies and expand business opportunities brought about by the Belt and Road initiative, according to the company’s statement.The Belt and Road initiative is China’s ambitious project to boost trade and infrastructure investment in more than 65 countries along the ancient Silk Road trade routes from Asia to Europe and Africa.Siemens said it had already partnered with hundreds of Chinese companies in overse…