MARKET TALK: Q4.2020 OUTLOOK
Interview with Willem Sutherland
Head of Wholesale Banking, Latin America at INGBy toni BAINI
The three months ending on September 30th saw a slight pickup in loan transactions from the previous quarter, but volumes remain far below recent years.
“For the whole year up to date, we have seen a bit more than $6 billion of transactions in the syndicated loan market, half of them from the first quarter, whereas this time last year, the same figure had reached over $43 billion,†Willem Sutherland, head of wholesale banking for Latin America at Dutch lender ING in New York.
This last quarter saw roughly $2.9bn in total transactions, according to data from Dealogic. This compares to roughly $6.8 bln and $10 bln in 2018 and 2019 respectively.
Buzios5 MV32 NV, led by Japan’s MODEC, Mitsui & Co., Mutsui OSK Lines and Marubeni Corp., secured an $859 million loan to fund the deployment of a floating production storage and offloading (FPSO) unit. The FPSO will be used by Brazil’s state-owned energy company, Petrobras, to work the Búzios oil and gas field in the Santos Basin about 200 km south of Rio de Janeiro.
Chile saw the most notable project finance deal, with Mainstream Renewable Energy closing a 19-year $566 mln loan, following multiple delays going back before the pandemic. State-owned company Copec, likewise, secured a $360 mln loan just as supply excesses in Chinese commodity markets began to ease.
Peruvian road company Autopista del Norte signed off on a five-year $350 mln loan deal led by Credicorp Capital and SMBC.
“During the previous quarter (Q2), one of the main topics was the withdrawal of revolvers by many big-name companies,†according to Sutherland.
Although there are still a few companies withdrawing revolvers, the majority of companies with bilateral revolvers and high rate loan are paying them down, Sutherland said.
“Borrowers are keeping the powder dry for the future. There is now less of a concern for access to liquidity, providing a very strong indication of where the market is headed,†Sutherland said.
Besides a halt on investments, the low activity in the loan volume can also be attributed in large part to the booming bond market and historically low interest rates. The attraction of the bond market means many larger corporates don’t have much of a need for the lending market.
With the postponement of many projects, demand for capital is much less relative to the amount of liquidity in markets enabled by central bank monetary easing, Sutherland noted.
Due diligence has also been impacted, forcing lenders to find alternative but also costlier ways to get deals done. This is causing project finance deals to face delays, according to Sutherland.
“There is not a lot of economic growth, no major projects have been announced, M&A has been quiet for a long time, though it is coming back slower,†he said.
