Asia Pacific Loan Industry Primed for Significant Recovery in 2025 with M&A Spike

After declining for three years in a row, Asia-Pacific loan volume outside Japan is expected to rise this year, boosted by merger and acquisition activity and a favorable interest rate environment.

According to Bloomberg data, the region's loan volumes totaled US$164 billion in the final three months of 2024, the best fourth-quarter performance in three years. The momentum predicts a strong start for 2025, which could reverse a three-year drop from a total annual peak of US$672.5 billion in 2021.

"The stabilising rate outlook and the conclusion of election cycles in several major economies will boost corporate confidence," said Andrew Ashman, Asia-Pacific head of loan syndicate at Barclays Bank. "This will boost M&A [mergers and acquisitions] and capital spending activities. We anticipate a big increase in financing volumes."

The asset class's 2024 loan volumes declined 4.6% to US$590 billion in Asia-Pacific outside Japan, the lowest yearly total since 2020, according to the statistics.

The deal pipeline for 2025 is already being built. In Australia, a A$800 million (US$497 million) buyout loan supporting Pacific Equity Partners' acquisition of car leasing company SG Fleet Group is slated to be launched this quarter. Peabody Energy, a US coal producer, also plans to refinance a US$2.1 billion bridge facility in the first half of the year to fund its acquisition of Anglo American's steelmaking coal mines.

In India, Reliance Industries is looking to borrow up to US$3 billion, which could be the country's largest loan since 2023, while Shriram Finance is looking to syndicate a portion of a US$1.28 billion multicurrency social financing, the largest ever offshore deal from an Indian shadow lender. Meanwhile, Marina Bay Sands is promoting a facility worth up to S$12 billion (US$8.8 billion), which might set a new Singapore record.

M&A funding increased last quarter, with volumes nearly tripling year on year to US$14 billion in Asia-Pacific excluding Japan, according to Bloomberg-compiled data, bringing the entire annual tally to US$35 billion, on par with last year.

"With a clearer outlook on the economy and interest rates, sponsors and acquirers can probably form a view around valuations on prospective purchases with more conviction and confidence given improved sentiment around things like inflation, labour costs, and underlying market strength," said Scott Austin, head of loan capital markets for Australia and PF syndications for Asia-Pacific at Sumitomo Mitsui Banking (SMBC).

Meanwhile, the trend of Samurai loans, in which overseas corporations raise yen debt, is expected to continue as borrowers look to reduce funding costs and diversify their currency basis. According to Bloomberg-compiled data, companies in Asia excluding Japan have committed a record 1.2 trillion yen (US$7.6 billion) to such facilities by 2024.

"Although yen rates are rising, it is expected that dollar rates will not fall as quickly," said Velarie Lee, SMBC's managing director of originations and agency for loan capital markets in South and Southeast Asia. "As such, there will still be some cost savings, which may still make sense for the price sensitive borrowers."

The risk-free secured overnight financing rate, the reference rate for dollar transactions, is holding at 4.49 percent following the Federal Reserve's quarter percentage point drop in December. In comparison, Japan maintains a near-zero rate.

Despite its economic troubles, China will remain an important market for Asia loans in 2025.

Offshore yuan transactions, or dim sum facilities, increased more than fourfold to a record 58.7 billion yuan (US$8 billion) in 2024, according to Bloomberg data.

According to Amit Lakhwani, global head of lending syndicate at Standard Chartered, loan activity in the world's second-largest economy will be driven mostly by refinancing, capital spending, and funding growth needs.

While the forecast for Asia's lending industry is reasonably positive, bankers are concerned about the potential headwinds that may surface in 2025. This includes the Fed's shifting signals on interest rates and trade tariffs, which may occur following President-elect Donald Trump's inauguration later this month.

"Borrowers and lenders will be monitoring developments closely and will recalibrate as needed post any policies or measures introduced," Lakhwani declared.