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Asian Firms Seek Short-Term Loans Amid This Year’s Bond Rout

·3 min read

(Bloomberg) -- Asian companies are increasingly resorting to loans, some just months in length, as a record bond rout this year complicates access to the more secure longer-term funding market.

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Among firms that had been active bond issuers in Asia, the number seeking short-term loan facilities this year has increased some 30% to 40%, according to Christophe Cretot, head of debt origination and advisory, Asia-Pacific at Credit Agricole SA. 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 Persero PT and Chinese miner Tianqi Lithium Corp., according to data compiled by Bloomberg.

Domestic corporate-loan activity has been strong in parts of Asia. Lending to domestic industries in South Korea jumped 15.9% from a year earlier in the second quarter, the biggest increase in a Bank of Korea data series dating to 2008. The loan-growth rate to India’s commercial sector rose has reached its highest since 2013, according to data from the Reserve Bank of India.

Meanwhile, 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’s effectively shut out many developers from selling dollar bonds.

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 Ltd. and China Vanke Co. have sought loans denominated in Hong Kong dollars, while Agile Group Holdings Ltd. secured a loan with 20% interest rate in June and conglomerate Fosun International Ltd. upsized a refinancing deal to the equivalent of $875 million.

Public data on short-term loans aren’t readily available given they are mostly done on a bilateral basis. But Hong Kong-based bank arrangers, asking not to be identified as they aren’t authorized 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.

Although Asia joined a global pickup in bond sales Tuesday, the region’s dollar-note issuance this year has been lackluster on the whole.

“Unlike bond issuance targeting investors, banks are more likely to support clients during the rainy days to maintain relationships,” said Natixis SA 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 favor the latter in the short run.”

(Adds details in the fourth and ninth paragraphs.)

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