Lenders Grapple With Virus Fallout

China has locked down entire cities and restricted travel to limit the spread of the epidemic, with serious implications for Chinese companies and global supply chains. US technology giant Apple warned that it would not meet its revenue guidance for the March quarter because of slower iPhone production and weaker demand in China.

The uncertain fallout from the coronavirus outbreak in China has paralysed syndications across Asia, as lenders struggle to assess the damage to Chinese businesses and borrowers that rely heavily on Chinese demand.

China has locked down entire cities and restricted travel to limit the spread of the epidemic, with serious implications for Chinese companies and global supply chains. US technology giant Apple warned that it would not meet its revenue guidance for the March quarter because of slower iPhone production and weaker demand in China.

Companies that rely heavily on Chinese tourists are also at risk, as dozens of countries and airlines have imposed travel restrictions.

“Some of our loans brewing before the Lunar New Year holidays are on hold now because some of our Chinese clients are still on leave and their factories remain shut,” said a banker from a leading international bank focused on China.

Lenders are struggling to obtain credit approvals for the worst-affected sectors, which means loans that are already in the market could face delays. The planned syndication of a loan for a REIT with a portfolio of mainland Chinese properties has been pushed back indefinitely.

The impact on the loan market has spread far outside China. Scape Australia Management is said to have extended the deadline on a loan of about A$1.4bn (US$968m) for its acquisition of a portfolio of student housing run by Urbanest to allow prospective lenders more time to assess the potential impact to the business, given that a large percentage of the students are from China.

A US$68.5m five-year loan to refinance a construction loan for the Waldorf Astoria hotel in Bangkok for Thai high-end real estate developer DTGO is also being closely watched.

“A few clients are increasingly opting for club loans instead of syndicated deals or requesting us to prefund syndicated loans with delayed roadshows,” said one Jakarta-based banker.

Macau’s gaming sector is also in the spotlight after the city’s government closed all casinos for 15 days earlier this month. Some were allowed to reopen last week, but with strict limits on table numbers and mandatory health checks for punters and staff. Weekly tourist arrivals to the city in early February were down as much as 98% on last year.

MGM China Holdings last week asked lenders to waive the leverage covenants on a HK$9.75bn (US$1.24bn) loan for the next 12 months. 

“If the situation drags on and affects cashflows, borrowers will seek waivers and deferred repayments. It is not a given that every borrower will succeed in obtaining the same, but this period will demonstrate to them how much support they can extract from lenders,” said another senior loans banker in Singapore.

The new coronavirus disease, named Covid-19, has killed more than 2,100 people and infected over 75,000, mostly in Hubei province in central China. That makes it more deadly than the 2003 outbreak of Severe Acute Respiratory Syndrome, caused by another coronavirus, which killed 774 people, including almost 300 in Hong Kong.

WEB PRESENTATIONS

Roadshows and bank meetings for loans from at least three Asian borrowers have been switched to dial-in conferences – a development unheard of in a region where attendees view such events as an opportunity to establish or enhance their relationships with borrowers.

Trans Retail Indonesia, a unit of Indonesian conglomerate Trans Corp, held a webinar last Wednesday, rather than a bank meeting, as part of its pitch to potential lenders for a US$740m-equivalent five-year dual-currency loan. Over 150 bankers participated in the webinar.

China’s state-owned Beijing Construction Engineering Group held a conference call on February 7 for a US$100m three-year loan, while Vietnam Technological & Commercial Joint Stock Bank (Techcombank) is doing the same on March 2 for a US$300m three-year debut loan.

“In my nearly two decades in this industry, I have not come across any instance of a roadshow being conducted in this way,” said a senior loans banker in Hong Kong. “The coronavirus is really hitting everyone hard.”

SARS EXPERIENCE

Back in 2003, Sars dented appetite for loans in the property and hospitality sectors in Hong Kong and Singapore. Hong Kong, in particular, bore the brunt and loan volumes tumbled 44% year on year for the first half of the year to just US$7.3bn, according to Refinitiv LPC data.

Blue-chip property borrowers, however, retained the support of their banks. Some of the biggest loans in Hong Kong in 2003 were from Sun Hung Kai Properties, NWS Holdings, Hang Lung Properties and Hongkong Land, among others.

This year’s coronavirus outbreak has hurt the banking hubs of Hong Kong and Singapore in equal measure. Volumes are expected to take a hit as lenders become selective, especially when it comes to debut borrowers.

That does not bode well for a region that is already reeling from the trade war between China and the US that has been raging for nearly two years. Loan volumes from Asia (ex-Japan) in 2019 dropped 4.25% year on year to US$464.24bn despite Hong Kong posting an all-time record of US$137.48bn. (Reporting By LPC Asia Pacific; Editing by Steve Garton)