Growing appetite for deals

SYDNEY: Australia's loan market will expand in the second half of this year as the global economic recovery gives companies confidence to seek acquisition financing, according to Westpac.

The nation's second-biggest bank is in talks with more clients about buyout opportunities than it was 18 months ago, executive director of loan markets Gavin Chappell said.

"We're seeing signs of debt-funded M&A activity starting to appear," he said. "There's certainly appetite for deals in the market, and the size of the deals you can do is getting bigger."

Peabody Energy's advances to Macarthur Coal and National Australia Bank's proposal to Axa Asia-Pacific Holdings have helped make 2010 the busiest start to a year for takeover offers in Australia in at least a decade, according to data by Bloomberg. Debt financing for buyouts accounted for about half the syndicated loan market before the global credit freeze, and is yet to make a comeback.

Syndicated loans in Australia and New Zealand totalled US$5.4 billion ($7.6 billion) in the first three months of 2010, the lowest quarterly figure since 2003, Bloomberg data show.

The number of companies needing to refinance debt has dropped after they rushed to lock in funding last year, according to Cathy Yuncken, Commonwealth Bank of Australia's head of institutional loan markets.

"By the fourth quarter we expect to be seeing increased confidence and more activity driven around growth as opposed to refinancing," she said.

Loans for buyouts will start to pick up in the second half of 2010, according to Chappell. Banks are willing to fund private equity deals worth as much as A$500 million ($647 million) and will provide "significantly more" backing for transactions involving investment-grade companies, he said.

The interest borrowers will have to pay for loans is likely to remain higher than before the crisis as banks pass on increased costs, Chappell added.

Loan pricing is being driven by credit risk and banks' cost of funding rather than the "liquidity premium" borrowers had to pay last year as banks crimped lending, says Yuncken.

More than US$30 billion has been offered for Australia-based businesses in announced deals this year, double the same period last year, according to Bloomberg data.

- Bloomberg