Lending Activity Increased to Drive Leveraged Finance Issuance in Asia-Pacific | White & Case srl

Real estate headwinds stifled high yield markets in the Asia-Pacific region, but loan issuance surged to post double-digit gains

Debt markets in the Asia-Pacific (ex-Japan) (APAC) region saw strong gains in 2021, with the combined issuance of high-yield bonds and leveraged and unleveraged loans rising from US$422.3 billion in 2020 to US$498 billion in 2021.

Global issue in value 2018 – 2021

Device type: High yield bonds, leveraged loans and unleveraged loans Use of profits: All
Location: Asia-Pacific (excluding Japan) Sectors: All sectors

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Overall issuance rose despite pandemic-induced disruption and dislocation in China’s property market, a key sector for the region’s debt markets. The buoyant lending market and pick-up in private equity (PE) activity offset these headwinds to drive the year-on-year upside.

Loans stimulate the market

The issuance of leveraged and unleveraged loans in the Asia-Pacific region increased by 24% in 2021, year-on-year, from $332.5 billion to $412 billion. Activity levels in the last quarter of 2021 proved particularly robust, with issuance reaching $119.4 billion in the fourth quarter of 2021, up 44% from the fourth quarter of 2020 figures.

New money and refinance loans both saw strong gains in the region, with both growing around 25% (new money) and 23% (refinance) year-over-year to 161 billion and $249.7 billion for 2021, respectively.

Issuance for equity-backed buyouts was particularly strong in 2021, nearly doubling year-over-year to $18.4 billion and offsetting a 19% drop in issuance for mergers and acquisitions. unsponsored acquisitions.

Private equity and institutional M&A deals were the main drivers of the market. Notable transactions include KKR’s A$1.51 billion equivalent Term Loan B (TLB) to finance its acquisition of a 55% stake in wealth management firm Colonial First State Investment from Commonwealth Bank of Australia, while in Japan, CVC Capital Partners secured a package of senior contracts and mezzanine facilities to fund its US$976 million acquisition of Try Group, Japan’s largest online tutoring provider.

The flow of infrastructure deals also boosted the issuance, with Deutsche Bank acting as lead arranger for a US$350 million debt financing for the infrastructure-focused tower company’s Indonesian subsidiary. EdgePoint Asia, backed by infrastructure investor Digital Colony. Additionally, infrastructure investor DigitalBridge secured lender backing for its US$750 million spin-off of PCCW’s data center assets in Hong Kong and Malaysia.

Private equity activity could continue to drive issuance in 2020, particularly in Japan, where the value of leveraged buyout deals jumped 3.9x quarter-on-quarter in 2021, reaching $7.6 billion. out of 23 transactions, according to Merger market.

The Chinese loan market, as always, has been very active in the region, according to By debts, with issues reaching US$100 billion despite the difficult real estate sector.

Deals like the US$1 billion bridge loan to support Inner Mongolia Yili Industrial Group’s planned purchase of Ausnutria Dairy, a Hong Kong-listed goat formula producer; and the HK$15.9 billion bridge loan for the proposed purchase of China Logistics Property by JD Property Group, occupied the Chinese loan market. Tech giant Alibaba, meanwhile, agreed to an extension and increase to its 2017 facilities, worth a total of US$6.5 billion in a senior secured revolving credit facility.

Lending activity in the region has also been boosted by lenders’ appetite for green and sustainability-related facilities. In Singapore, property issuer Asia Square Tower 1 secured a five-year SG$2.1 billion green loan and Hong Kong property group Sun Hung Kai raised an 8.65 billion sustainability-linked loan. HK dollars over four years.

Real estate weighs on high yield

Unlike the lending sector, high-yield activity in APAC was directly impacted by headwinds in China’s real estate sector.

The country’s high yield market has accounted for the lion’s share of high yield issuance in the region historically, with real estate being the main contributor. In 2020, Chinese real estate alone accounted for just under two-thirds of the US$89.9 billion in high-yield issuance in APAC.

Challenges in China’s property market led to a notable decline in high-yield borrowing by Chinese property issuers in 2021. Activity in the property sector was particularly weak in the second half of the year, with third and fourth quarter issuance not reaching than the United States. US$7.3 billion and US$2.3 billion respectively, according to By debts, compared to issues of US$17.6 billion in Q1 and US$11.3 billion in Q2. Many high-yield bond managers in the region closed their 2021 books early, choosing instead to wait for the real estate space to stabilize.

However, this decline was mitigated by strong activity in other sectors. For example, higher yielding issuance in the energy sector and gains in industrials and financials provided a soft landing.

Notable deals outside of real estate that have successfully gained access to high yield investors in the region include Medco Laurel Tree, an Indonesian oil and gas company, which secured a US$394 million high yield bond .

Global high yield issuance in the APAC region increased from US$89.9 billion in 2020 to US$86.1 billion in 2021.

The loan market to lead the business

As we approach 2022, APAC lending markets should continue to drive leveraged finance activity until the real estate industry stabilizes.

The Asia-Pacific TLB market has grown rapidly over the past year, climbing 152% year-on-year to US$10.2 billion. Softbank-backed hotel group OYO raised the first-ever TLB by a South Asian company in 2021 with a five-year TLB of $660 million. Additionally, at the end of 2021, Byju, an Indian provider of online educational services and materials, entered into a five-year US$1.2 billion cov-lite TLB which will be used to fund growth in America. North and other potential strategic opportunities. .

The growing appetite for green and sustainability-related lending, which quintupled issuance in 2021, will provide further impetus to the lending segment.

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