IFR Asia: Taiwan lenders venture offshore

IFR Asia, September 2009

Taiwanese banks are proving a useful source of liquidity for overseas borrowers. They have plenty of funds, but not much of an opportunity to get a return on them domestically since interest rates and spreads are low on New Taiwan dollar lending. Going overseas gets a better return on funds, without necessarily increasing the risk profile too far.

The best way of getting a handle on overseas lending by Taiwanese institutions is to take a look at the Central Bank of the Republic of China’s overview of offshore banking units, published periodically and most recently on September 8 (for July 31 data). This records data on 63 offshore banking units – 36 for domestic banks and 27 for foreign – who between them had US$28.911 billion of outstanding loans as of July 2009, 97% of it to overseas clients. US$19.136 billion of it is considered long-term, US$8.766 billion short term.

This liquidity has been noticed by a variety of borrowers, but has recently been particularly visible in Australia. Taiwanese lenders don’t tend to show up at the mandated lead arranger level here, but they are more and more frequently found in the syndicate. Westfield’s US$1.36 billion three year loan, agreed in early September, featured Bank Sinopac and Chinatrust Commercial Bank in the deal – not with heavyweight contributions, but present nevertheless. Similarly, when waste treatment firm Transpacific Industries Group signed a A$2.128 billion one and three-year loan with three Australian bookrunners in June, they then went out to a co-arranger group including Mega International Commercial Bank of China (a Taiwanese institution) and Chinatrust. Mega and Chinatrust also turned up on the US$500 million-equivalent multi-tranche facility for Foster’s in July, as did a glut of other Taiwanese lenders: Chang Hwa Commercial Bank, Taiwan Business Bank, Taipei Fubon Commercial Bank, Yuanta Commercial Bank, Bank of Taiwan, Hua Nan Commercial Bank, Land Bank of Taiwan and Taishin International Bank.

Asian borrowers have been aware of this source of funding for some time, and here Taiwanese lenders sometimes take higher roles in the syndicate. Chinatrust is probably the clearest example. It joined a S$150 million two-year bullet deal for Toll (Asia) in Singapore in September on an equally underwritten basis with local leads DBS, OCBC and UOB. Chinatrust is also one of six banks in a US$270 million five-year club loan for UEM Group, the Malaysian water and wastewater business, signed on August 28. With Taishin International Bank, it took part in a US$70 million loan for Kopholi, a Mauritius-based arm of Tata Power. And it is also among the banks believed to be sounding out a US$500 million loan to Indonesian coalminer Adaro, and elsewhere in Indonesia participated in a US$400 million facility for state-owned oil refiner Pertamina.

While Chinatrust is the most active name, Mega turns up with similar frequency. MTP HPPI Manufacturing, a joint venture between Dow Chemical and Siam Cement, struck a US$400 million 12-month bridge in August, with Mega one of nine banks in the facility. It was also one of the bigger contributors to a HK$1.2 billion loan for PrimeCredit, alongside Industrial Bank of Taiwan and Yuanta, with SinoPac, Bank of Taiwan, Chang Hwa, Far Eastern International Bank, Fubon and Taiwan Business Bank also appearing with smaller contributions. Mega also joined in a US$125 million deal for Indonesian trade promotion agency Bank Ekspor Indonesia earlier this year.

Then of course there are borrowers with Taiwanese connections who raise funds overseas. Formosa Industries is active in textiles in Vietnam, and raised a US$80 million five-year loan in August through an almost entirely Taiwanese MLA group, including Chinatrust, First Commercial Bank, Hua Nan Commercial Bank, Mega International Commercial Bank and Taipei Fubon Commercial Bank alongside HSBC. Further flung deals this year with entirely Taiwanese lead arranger groups have included the Finnish telecommunications and electronics component supplier Perlos Oyj and a Panamanian borrower called Colon Container Terminal.

Deals like this pay well, but come with a certain risk too: they take Taiwanese banks further and further away from their areas of expertise. There’s little to worry about in some of the Australian deals Taiwanese borrowers have taken part in, but investors may question just how good the credit comprehension is of Indonesian entities, for example, to say nothing of Panamanian or Finnish ones.

Still, Taiwanese banks do need to make money from somewhere: there are proposals working their way through parliament to cap credit card fees, for example, which wealth management revenues – a previous big earner – have been badly hit and there is lingering concern about exposure to the semiconductor industry. Overseas lending has its risks but it seems a natural route for Taiwanese banks to take in the absence of other opportunities.