Debt Market Update Q4 2017 | KPMG | AU

Debt Market Update Q4 2017

Debt Market Update Q4 2017

The volume in the syndicated loan market closed at US$72.5 billion for the calendar year 2017 – in line with the US$72.8 billion raised during 2016. Q4 2017 lending decreased by 32.5 percent to US$19.8 billion compared to US$29.3 billion in Q4 2016.

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Domestic banks continued to face intense competition from the offshore banks in Q4, with a number of Asian lenders more than doubling their share of syndicated and club loans in Australia since 2015 (Source: Market Monitor, LoanConnector). As a result, the market saw a number of oversubscribed transactions and a tightening of pricing throughout the year.

Key themes

  • Australian bank debt market – quality issuers offering well-structured deals continue to take advantage of the strong liquidity in the syndicated loan market.
  • Australian domestic bond market – with bonds pricing below bank debt levels for 5-year tenors, bank debt issuers are increasingly accessing debt capital markets.
  • USPP – issuance continues to be dominated by large scale infrastructure privatisations – VIC project adds to the volume along with NSW projects.
  • Positive outlook for 2018 with more domestic privatisation projects in the pipeline.

Notable transactions

Notable transactions for the quarter include:

  • Cooper Energy raised a A$250 million 7-year loan, fully underwritten by ANZ and Natixis, to develop its Sole gas field in Victoria. The project has long term offtake agreements with a number of energy providers to supply circa 75 percent of its gas. The loan was priced with a margin of 400bps over BBSY during the 2-year construction phase, reducing to 300bps over BBSY when the project becomes operational. The transaction covenant’s included a liquidity reserve, on-completion DSCR ratio and a cash flow utilisation negative pledge.
  • French renewables developer, Neoen, secured A$182 million in project financing to develop a 150MW solar farm, located near Coleambally in NSW. The project has also received A$30 million in debt financing from the Clean Energy Finance Corporation. The loan is priced in the low 200bps over 6-month BBSW with a gearing of 68 precent.
  • The Chinese wind turbine maker Xinjiang Goldwind Science & Technology Co Ltd (Goldwind) raised a A$680m 5-year project facility. The loan was provided to develop the 530MW Stockyard Hill Wind Farm, which will be Australia’s largest wind farm. Lenders were heavily scaled back after the loan attracted close to A$1.9 billion in commitments. Pricing is expected to be in line with other similar transactions – 185-200bps for the construction phase and 165bps for the operational phase. KPMG advised Goldwind with respect to the project.
  • Renewable energy developer RES Australia reached financial close in Oct-17 on the 68MW Emerald Solar Park in QLD. A 5-year A$118.5 million project loan was provided by NAB and WBC to support the construction. The project is backed by a long-term offtake agreement with Telstra Corporation.
  • Latrobe Valley Power (Finance), the borrower for Alinta Energy, secured a 5-year acquisition loan totalling A$715 million to purchase Loy Yang B power plant from Engie SA and Mitsui & Co. The loan has a margin of 235bps over BBSY with a 40 precent commitment fee of margin.
  • Western Roads Upgrade Project, Sunshine Coast Gateway Pty Ltd, Lincoln Gap Wind Farm and Moree Solar Farm were some of the other deals that contributed to the project financing volume for the quarter.

Australian syndicated loan volume (US$billion)

Source: Loan Connector (data extracted February 2018) and KPMG Analysis

Australian syndicated loan volume, LTM by sector (US$ billion)

Source: Loan Connector (data extracted February 2018) and KPMG Analysis

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