The loan market in Europe, the Middle East and Africa had a trouble-free first half of 2010. Pricing narrowed, five year tenors were much more common and oversubscriptions were the order of the day.
But it would be wrong to think that all is well. Instead, the market in EMEA has patently failed to improve as much as bankers hoped it would at the beginning of the year. In particular, the region has lagged the US and Asia, whose loan markets have recovered far more quickly.
The clearest manifestation of this is growth in supply. In EMEA, there were $354bn of syndicated loans in the first half, according to Dealogic, an 11% rise from what was a dire period a year earlier. In the US, volumes grew a much more impressive 64% to $497bn. In north Asia (which includes China) they rose 51% and in southeast Asia 34%.
Especially worrying for Europe is that of its four biggest loan markets, only France saw year-on-year growth in the first half of 2010. Supply dipped 19% in Germany, 12% in Spain and was unchanged in the UK.
EMEA is also becoming less lucrative for lenders compared with the rest of the world. The Americas accounted for 67% of global loan revenues in the first half, while EMEA made up 22%. This measures poorly with the 2-1/2 years until the middle of 2007, when EMEA loan revenues made up just under half of the global total.
EMEA’s slumber can hardly be blamed on the banks. They have consistently said they are willing to lend and frustrated by the lack of supply. The high demand for almost all prominent deals in the last six months — including those in emerging markets — testifies to that.
Instead, the problems go far beyond the loan market. One of these is M&A activity being suppressed. Without takeover activity growing, volumes in EMEA’s loan market are hardly likely to pick up. Refinancings cannot fill the gap in its entirety.
So what now? Unfortunately, the next six months could well bring more of the same. For supply to increase, Europe’s economic outlook has to improve, lest chief executives remain wary and continue to shun expansion. But that seems unlikely in the short term, not least because of the austerity measures being implemented across the continent to cut sovereign debt.
The loan markets in the US and Asia have brighter outlooks, thanks to better prospects for economic growth in those regions. As such, EMEA could continue to lose ground in the next six months. It might well have to wait until 2011 before it can re-establish itself as a genuine rival to the US in terms of dealflow and depth of liquidity.
