The region’s loan volumes reached US$164 billion in the final three months of 2024 – the strongest fourth quarter performance in three years.

Asia-Pacific loan volume outside Japan is gearing up for a rebound in 2025 driven by merger and acquisition activity and favourable rates environment, after falling for three years straight.

The region’s loan volumes reached US$164 billion in the final three months of 2024 – the strongest fourth quarter performance in three years. The momentum suggests a robust start for 2025, potentially reversing a triple-year decline from a total annual peak of US$672.5 billion in 2021.

“The stabilising rate outlook and the concluding election cycle in several major economies will spur corporate confidence,” said Andrew Ashman, Asia-Pacific head of loan syndicate at Barclays Bank. “This will drive M&A and capital expenditure activity. We are expecting a strong pick-up in financing volumes.”

The asset class’ 2024 loan volumes fell 4.6 per cent to US$590 billion in Asia-Pacific outside Japan, the lowest yearly tally since 2020.

The 2025 deal pipeline is already building. In Australia, an A$800 million buyout loan backing Pacific Equity Partners’ takeover of car leasing firm SG Fleet Group is set to launch this quarter. US coal company Peabody Energy also intends to refinance a US$2.1 billion bridge facility in the first half for its acquisition of Anglo American’s steelmaking coal mines.

In India, Reliance Industries is seeking to borrow as much as US$3 billion, in what could be the largest loan from the country since 2023, while Shriram Finance is looking to syndicate part of a US$1.28 billion multi-currency social financing, the biggest ever offshore deal from an Indian shadow lender. Elsewhere, Marina Bay Sands is marketing a facility of as much as S$12 billion, setting a potential record for Singapore.

M&A financing picked up last quarter with volumes almost doubling year-on-year to US$14 billion in Asia-Pacific excluding Japan, taking the total annual tally to US$35 billion, on par as the previous 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 Australia and PF syndications Asia-Pacific at Sumitomo Mitsui Banking Corp.

Meanwhile, the tide of Samurai loans, where foreign firms raise yen debt, is likely to continue as borrowers seek to cut funding costs and diversify their currency base. Companies in Asia excluding Japan have signed a record 1.2 trillion yen (S$8.7 billion) in such facilities in 2024.

“Although yen rates are creeping up, the expectations are that US dollar rates are not going to moderate down as quickly,”said Velarie Lee, managing director, originations and agency, loan capital markets South and South-east Asia at SMBC. “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 US dollar deals is hovering around 4.49 per cent following the Federal Reserve’s quarter percentage point cut in December. In contrast, Japan still boasts a near zero rate.

China will remain one of the key markets for Asia loans in 2025, despite the nation’s economic challenges. Offshore renminbi deals, or so-called dim sum facilities, jumped more than four-fold to a record 58.7 billion yuan (S$11 billion) in 2024.

Loan activity of the world’s second largest economy will be driven primarily by refinancing, capital expenditure or to fund growth needs, said Amit Lakhwani, global head of loan syndicate at Standard Chartered.

While the outlook for Asia’s loan market is relatively rosy, bankers are cautious about the potential headwinds that could arise in 2025. This includes the Federal Reserve’s shifting signals on interest rates and trade tariffs that could come about 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,” said StanChart’s Lakhwani.

Bloomberg