Debtwire Secondary loan wrap: commodities names, stressed debt a ‘tough sell’ in 2016

15 January 2016 | 18:26 CST

by Stephen Aldred and Jou Yu

Loans from stressed and commodity names are likely to be a tough sell in the secondary, at least in the first half of 2016, with bank buyers looking for quality and funds demanding lower prices, according to panelists at the Asia Pacific Loan Market Association Secondary Markets seminar.

Bid-offer spreads on loans from such names remain wide and are unlikely to shift in the near term, said the panelists at the seminar in Hong Kong on January 12.

Despite the ongoing commodity downturn and oil plunging to record lows, trades in debts of commodity-linked companies, particularly in Indonesia and Australia, were thin in 2015, the panelists said. Sizeable deals that were expected to generate good volumes have so far remained in stasis, among them Jurong Aromatics and Wiggins Island Coal Export Terminal , they said.

“The year 2015 was near the bottom of the cycle for distressed-debt trading, and activity was much lower than we’d seen in recent years,” said Steve Lyons, chief operating officer at SC Lowy.

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SC Lowy COO and General Counsel Steve Lyons

Panelists at the event noted that while they saw pockets of distressed-debt trading in 2015, many of these were in the USD 300m-USD 500m range, and only a few were large-cap structures in excess of USD 1bn.

“Sellers were holding on, hoping a rebound would come,” said Andrew Tan, head of secondary trading for Asia ex-Japan at Nomura. “The question is, how long can borrowers hold out and kick the can down the road. The longer it takes for prices to come back the more cash margins seep away, and eventually you have to do a real rejig of the capital structure.”

For 2016, the theme is commodities, the panelists said. With China’s economy continuing to slow, countries like Indonesia and Australia that are heavy suppliers of commodities would be expected to generate a rise in volume of debt trades, they said.

“You’ve got a lot of banks that are not taking as much pain as they may need to, and on the other hand you’ve got funds who are not seeing a real drop in pricing to where they feel it needs to be,” said Lyons.

“So you’ve got a disconnect, and either you’re going to have to see banks taking more write-offs, or a bit of a rebound in commodities so the buyers are willing to put prices up and you get more of a match on pricing.”

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