Asian corporations are broadening their sources of funding by expanding the number of banks with whom they have bilateral lending relationships.
They are also making more use of other funding vehicles such as syndicated loans and debt capital markets products, according to Greenwich Associates' 2006 Asian Corporate Finance Research Study.
Asian companies' credit has traditionally been consolidated in the hands of a few key banks, but in recent years local banks have become more aggressive and reliable lenders. By forging relationships with these new providers of capital at a time in which credit is already in relatively ample supply throughout the region, Asian corporate executives are loosening past constraints that often led them to use important lenders for other types of financial service business.
'Any Asian companies that have not begun this process might be missing out on a unique opportunity to decrease their reliance on their top lenders which may sometimes constrain their ability to choose providers for other services such as corporate finance advisory, treasury products or cash management solely based on merit,' says Greenwich Associates consultant Markus Ohlig.
A new Greenwich Report presents the key findings of this research, including the latest data on compensation levels of finance officials at large companies throughout Asia.
Moving beyond traditional lenders
Companies in Asia are much more dependent than their counterparts in the United States and Europe on bilateral credit, and lead banks still hold a high proportion of Asian companies' total credit commitments - about 48% in bilateral credit facilities and more than 40% in syndicated facilities. However, the favourable credit conditions of the past several years have created new opportunities, and the more sophisticated companies have already begun reaching out beyond their two or three traditional central lenders in order to establish new sources and methods of raising capital.
These changes are already having an impact on the way Asian corporate executives view their companies' overall funding position. For example, the percentage of corporate officials saying that the concentration of credit was a cause for concern fell to just one-third in 2005, from 47% last year.
One of the main factors serving to alleviate these concerns is the growing presence of local banks in the Asian marketplace for domestic banking services. The proportion of Asian companies' domestic banking relationships held by foreign banks fell from 60% in 2003 to 54% in 2004 to 51% in 2005. The success of local banks in the domestic arena, which has yet to be replicated in international banking, is due in large part to their increasing readiness to provide credit on terms comparable to foreign banks.
Debt capital markets: more products, new priorities
At the same time Asian corporations are establishing relationships with new banks for bilateral and syndicated credit, they are also becoming more active users of the debt capital markets. Each year, Greenwich Associates asks Asian companies if they are currently in dialogue with any banks about a potential bond offering. In 2004, 28% were actively engaged in such talks; this year the number rose to nearly a third.
Looking ahead, nearly 10% of the largest 250 Asian companies plan to issue bonds in the United States in the coming year, 12% are planning an offering in Europe and almost a third are planning to do a domestic bond offering - a finding that could give another boost to local banks who have the requisite debt capital markets capabilities.
'More Asian companies are tapping into capital markets, including a considerable number that are diversifying their investor base beyond their domestic markets,' says Greenwich Associates consultant John Feng. 'Aside from debt capital markets, we also see a growing proportion of Asian companies, now just over 60%, engaging their banks for structured finance products.'
Compensation on the rise at Asian companies for finance and treasury pros
For the second year in a row, median cash compensation, including both salaries and cash bonuses, for corporate finance and treasury professionals throughout Asia participating in the most recent Greenwich Associates research increased 3%, rising to USD 103,000 in 2005. Average salaries increased 2% from USD 78,000 to just under UD 80,000, while bonuses continued their upward trend, increasing almost 7% to over USD 23,000. Corporate finance and treasury professionals in Hong Kong were the most highly compensated corporate finance officers in Asia once again in 2005, with median total cash compensation levels of over USD 162,000.