The Hindu Business Line : ‘Offshore loan deals down 46% by value’

Mumbai, Nov. 11 The resources raised by India Inc via foreign currency syndicated loans have declined by a steep 46 per cent to around $13 billion in the first nine months of this calendar year as against $24 billion in the corresponding period last year, a senior Bank of America (BoA) official said here on Tuesday.

Painting a bleak picture for the fourth quarter of this calendar year, Mr Asit Bhatia, Managing Director (Global Corporate and Investment Banking Group), BoA, said the loan market would continue to weaken as priorities shift to preserving capital. He emphasised that India could not remain immune to the financial turmoil in the US.

“The global markets continue to remain challenged. Indian offshore loan transactions have come down significantly in terms of both volume and numbers. Spreads have increased by five to eight times over 2007 levels across a wide range of borrowers and tenors,” said Mr Bhatia.

In the first nine months of 2008, Thailand (-76.38 per cent), Philippines (-65.23 per cent), Hong Kong (-55.94 per cent), Malaysia (-50.93 per cent) and India (-45.92 per cent) saw the maximum decline in syndicated loan volumes, while Singapore (135.57 per cent) and Indonesia (129 per cent) saw significant growth.

Decline in loan size

The average syndicated loan deal size in India has come down to around $300 million in the first nine months of the calendar year as against around $375 million in FY 2007.

Further, the tenor of syndicated loans had become shorter. Loans now have an average tenor of three to five years as against eight to 10 years earlier.

He pointed out that there was an increased trend towards benchmarking loan spread against comparable Credit Default Swap pricing and secondary loan trading levels.

(A CDS is a counterparty agreement which allows the transfer of third party credit risk from one party to the other. One party in the swap is a lender and faces credit risk from a third party, and the counterparty in the credit default swap agrees to insure this risk in exchange of regular periodic payments.)

‘Steady decline’

“The Indian loan market is mirroring the Asian trend. Loan volumes have been steadily declining since the beginning of the year.

There is balance sheet pressure on lending banks and there is intense focus on counter-party credit quality,” Mr Bhatia said.

Elaborating on BoA’s plans for India, Mr Rajeev Bhargava, Senior Vice-President, BoA, said India presented a great opportunity for outsourcing of account receivables and payables for its clients.

The bank had plans to expand its global treasury product solutions in India by providing access to payments, forex, accounts and cash management services to corporates operating from multiple locations.