Babson Capital Management LLC said it will increase lending in Australia and Asia, taking advantage of borrowers offering higher margins as European banks retreat.
The asset manager plans to double or triple the funding it provides in the Asia-Pacific region in coming years, Michael Hermsen, the head of Babson Capital’s global private finance group, said today in a telephone interview from Springfield, Massachusetts. Babson Capital, which manages $149 billion globally, has a portfolio of about $700 million in Asia and Australia split between leveraged loans, subordinated debt and private equity, Hermsen said.
Global banks scaled back cross-border lending to companies, governments and each other at the fastest rate since 2008 in the final quarter of last year, the Bank for International Settlements said last month. European banks embroiled in their region’s sovereign fiscal crisis have cut lending in Australia to about a quarter of outstanding syndicated debt, from a market share of more than 33 percent in 2008, according to the Reserve Bank of Australia.
“Many banks are withdrawing from their Asian outposts,” said Hermsen. “Spreads exceed the returns we can get for comparable credits in other parts of the world.”
Some Australian borrowers are offering lenders all-in returns of more than 500 basis points, or 5 percentage points, more than the benchmark bank bill swap rate, Hermsen said. Babson Capital has participated in loans for Spotless Group Ltd. (SPT), MYOB Ltd. and Energy Developments Ltd. (ENE), he said.
Syndicated loans in Australia dropped 37 percent to $31.9 billion this year compared with the same period of 2011, according to data compiled by Bloomberg. Two of the top 10 arrangers were from outside of the Asia-Pacific region, compared with five last year, the data show.
“The diminished credit supply as traditional lenders recede and limited alternative sources of funds, such as high- yield bonds, makes the Australian leveraged loan market attractive for investors,” Shane Forster, Babson Capital’s co- head of Asia-Pacific leveraged finance, said in a telephone interview from Sydney today.
Junk bond sales in Asia outside of Japan denominated in either dollars, euro or yen totaled $6.9 billion this year, down from $11.7 billion in the same period of 2011, data compiled by Bloomberg show. Investment-grade securities make up 98 percent of outstanding bond lines in Australia, according to data compiled by Bloomberg tracking issues of at least A$100 million ($102 million).
High-yield bonds, also known as junk, are rated below BBB- at Standard & Poor’s and Fitch Ratings, and Baa3 at Moody’s Investors Service.
Babson Capital favors lending to so-called defensive, non- cyclical industries such as business services, health care and consumer staples, Forster said.
The asset manager, which outside of the U.S. has offices in London and Sydney, raises the money it lends from institutional investors including pension funds.
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