Asian Companies Remain Confident Amid Global Financial Crisis
( Greenwich Associates )
(May 12, 2008)
Economic Strength Brings Surge in M&A and Capital Markets Business
Monday, May 12, 2008 Greenwich, CT USA - Asia's largest companies remain bullish about their prospects for the rest of 2008, despite the lingering crisis in global credit markets and a growing consensus that the United States is on the brink of economic recession.
The results of Greenwich Associates' most recent Asian Corporate Finance Research Study reveal several indications that Asian markets have weathered the credit crisis in better condition than markets in North America and Europe, and that companies across Asia are confident in their ability to secure credit and other essential services from their banks.
Forty percent of Asian companies tell Greenwich Associates they expect to do more business with their banks in 2008 than they did in 2007, while only 6% predict a reduction - a clear indication that Asian companies are feeling optimistic about the direction of their businesses for the coming year. In comparison, only 26% of the European companies and less than a quarter of the U.S. companies interviewed in the most recent Greenwich Associates studies said they expect to increase their banking business in the year ahead.
At the same time, only 37% of the Asian companies interviewed for this year's study name systemic or market risk as one of their primary financial concerns, and only 35% include liquidity risk in this list. When asked to name the risks that most keep them up at night, more than half of the Asian corporate executives cite currency exposure or interest rate volatility - risks associated more with business growth and cross-border expansion than with global financial crisis. By comparison, over half of all large European companies cite systemic/market and liquidity risk as top concerns.
The Credit Advantage
Greenwich Associates' research focuses on another area helpful in assessing the credit environment for companies around the world: the connection between credit provision and other banking products. In times of tight credit, companies tend to reward lenders by providing them with other forms of banking business to help solidify access. When conditions are looser and credit is in ample supply, companies have less incentive to reward lending banks.
In both Asia and Europe, lenders' advantage over non-lenders in the competition for non-credit-related business declined significantly in recent years as the liquidity bubble expanded. The shift was most pronounced in Asia, where the advantage enjoyed by lenders over non-lenders has historically been bigger than that seen in Europe. In 2007 trends diverged: Top lenders significantly increased the amount of non-credit business won from companies in Europe; in Asia, the advantage enjoyed by top lenders continued to decline.
"In both markets our research suggests that the turmoil in global credit markets has not reduced companies' access to bank credit in any meaningful way - yet," says Greenwich Associates consultant Markus Ohlig.
Of course, it is impossible to say for certain that Asian companies will remain largely unaffected by the credit crisis for the remainder of this year. Since its initial outbreak with the collapse of the U.S. sub-prime mortgage market in August 2007, the credit crisis has time and again surprised the market with its geographic reach, its penetration into new sectors of the market and by its sheer magnitude and duration. "Conditions in Asia have already changed to some extent since we conducted the interviews for our research in October through November," says Markus Ohlig. "Banks in the region have announced modest credit-related write-downs and equity markets have taken a series of hits. In our assessment, however, the conclusions derived from the research data still stand: For the time being at least, it seems that Asian companies in need of credit and other essential financial service products and services can still obtain them at relatively favorable prices. As a result, the global credit crisis has not had a major impact on companies' plans and expectations for 2008."
Surge in Asian Financial Activity
The robust economic environment has led to a surge in mergers & acquisition and capital markets activity across Asia. In 2006, 15% of large Asian companies reported to Greenwich Associates that they have engaged the services of an advisor on an M&A transaction over the past 12 months; in 2007 that share jumped to 21%. Over the same period, the share of companies saying they had hired a bank for debt capital markets business increased to 36% from 32%, and the proportion reporting that they used a bank for equity capital markets services increased to 17% from 6%.
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