Greater China Offshore Loan Volumes Show Signs of Recovery

Offshore loan volumes in the Greater China region rebounded in the third quarter from the previous three months amid a recovery in the nation’s economy from the global pandemic.

Firms in China, Hong Kong, Taiwan and Macau borrowed $25.4 billion of offshore club and syndicated loans in the three months ended September, a 25% increase from the second quarter, according to Bloomberg-compiled data. That remains low compared to the average quarterly volume of $38.4 billion for 2019. Compared with a year ago, the third quarter performance was the worst since 2012, suffering a 46% plunge.

Despite the latest rebound, a full recovery may take longer, hampered by fewer overseas acquisitions.

“In the third quarter, the average offshore Chinese loan size was smaller compared to previous years.Volumes have dropped a lot as there were very few jumbo loans,” said Aaron Chow, general manager, loan capital markets department, Asia Pacific at Sumitomo Mitsui Banking Corp. Loans for Chinese outbound M&As have also been “scarce” due to tighter restrictions and difficulty in getting regulatory approvals, he added.

Greater China Offshore Loan Volumes Show Signs of Recovery

Only $67.6 billion of offshore loans were completed for Greater China firms in the first nine months of 2020, the data show, down 43% compared to a year earlier.

Borrowing costs were higher especially during the height of the pandemic in the first half versus last year. Average three-year U.S. dollar loan margins for Greater China deals in the first quarter hit the highest since late 2018.

“The market conditions right now are relatively suitable for launching deals as funding costs and market pricing have stabilized,” said Chow. Some investment-grade borrowers “had to pay a premium of about 15 to 20 basis points earlier this year but may now cut the premium by half or even to zero,” he said.

©2020 Bloomberg L.P.

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