Barclays Capital is carving a niche in event-driven loan transactions in Australia. While the country's four major domestic banks dominate club-style, bi-lateral deals, Barclays is playing at the structured edges where returns are higher and client loyalty reigns.
FinanceAsia spoke with Sydney-based director of global loans, Steven Zuckerman, and managing director, Tim Ritchie, on his recent trip to Australia.
What characterizes your strategy in Australian loans?
Ritchie: We're selective in the type of deal that we focus on. We're very rarely in a position other than the lead role and we tend to concentrate on more structured business and less on commoditized lending. That means doing the bigger deals that centre around acquisitions and involve more complex structures. We might not be involved in as many deals as other banks that have a larger domestic presence, but we aim to be involved in the more interesting pieces of business.
Does this reflect your overall Asian strategy?
Ritchie: Yes. We've been most active in the event-style transactions in markets like Malaysia and India. We worked on Guoline's acquisition of a residual stake in Guoco and we also worked on Petronas's TTM project. Both of these were novel structures with a project finance nature.
Name a few of your key deals in Australia.
Zuckerman: We worked with Alinta on the acquisition of Duke Energy's Australian/New Zealand gas and electricity assets and we backed TABCORP in their successful bids for both Jupiters and Tab. We are currently in the final stages of closing the acquisition for the Dampier to Bunbury Natural Gas Pipeline backing the preferred bidding consortium comprised of DUET, Alcoa and Alinta and will be launching syndication to the bank market in the next few weeks.
Why do these types of deals play to Barclay's capabilities?
Ritchie: Partly because of the expertise of the individuals in our team and partly because of our willingness to underwrite transactions. Our balance sheet allows us to take the exposure and then our distribution network allows us to sell it on. The fact that we are prepared to pursue bridging opportunities also helps. Still, it's a very competitive market with a lot of banks trying to increase their share of Australian financing transactions. I think local companies like working with us because we provide quick turn around. Even though some decisions have to be referred to London, we get back to our clients quickly.
Is this type of service rewarded?
Zuckerman: Sure, we have had a lot of repeat business. Tabcorp approached us about the Tab deal because we assisted them in the successful acquisition of Jupiters in 2003. And we're now working with Alinta on their bid for Epic Energy's Dampier to Bunbury gas pipeline after assisting them with the Duke deal earlier this year and acting as a lead underwriter on the Project Shearwater financing in 2003.
Dampier to Bunbury is a big deal. Is it any closer to being decided?
Zuckerman: It is in the final throws at the moment. Shipping contracts are being finalized and once this happens, our preferred bidder consortium will be able to close the deal with our financing. We're working with Citigroup and Westpac on this deal.
Australian loans still pay a premium, do you envisage more yield compression in coming months?
Zuckerman: Australia has always been priced at a premium for comparable credits and financing transactions in other key offshore loan markets and I would like to think this is because banks are fairly disciplined in terms of the returns they require.
True, pricing has come down in the last two or three years but business flow and deal flow is picking up so I really don't see it dropping much further. Price compression is a global theme. It is a good time for clients around the world to be coming to market because of the amount of liquidity in the system.
I think Qantas illustrates this. We just closed the refinancing of Qantas core global 'jumbo' syndicated loan facility which priced marginally lower than the deal it refinanced from 2001. Notwithstanding the lower pricing, banks were still very keen to support the deal and Qantas more generally as a leader in the airline sector. The facility was widely distributed with close to A$3 billion raised from 33 banks across the Asia/Pacific region, although Qantas elected not to upsize the facility amount and the deal was signed for A$1.9 billion.
Do you distribute all of your paper or is some held on balance sheet?
Ritchie: We certainly have an appetite for holding an appropriate portion of the deals we lead on our books. There's an expectation from clients in Australia that we will hold assets and we do support our clients by holding the amount expected of a lead arranger of transactions.
In some other parts of the region we distribute a larger portion of the deals both because, in the more emerging markets, of country limit constraints and also client's expectations are different, they are not so set on us holding the assets so we tend to churn our exposure more readily.
Do you expect cross border M&A between Australia and Asia to pick up?
Ritchie: There will be selective deals, and the flows will go both ways as Asians look for Australian assets and Australian companies look to expand their international footprints. We have helped Westfield with a few of its shopping centre acquisitions in the US and we have also been involved in each of Cheung Kong Infrastructure's successful utility sector acquisitions in Australia. I suppose China is going to be the market to watch in the coming years as companies look beyond their home market for investments.