Asia companies find credit hard to obtain

Asia companies find credit hard to obtain

HONG KONG (Reuters): Asian companies are finding that bank letters of credit and other financing for commodities trade have become more costly and harder to obtain in the midst of the region's economic malaise.

Bankers and traders say the pace of deals has slowed in several countries in commodities from sugar to palm oil as well as in consumer goods trade.

South Korea has been hit hardest, but traditional trade lending also has tightened in Japan, Indonesia and Thailand, the bankers and traders said in interviews.

"Balance-sheet lending for trade is suffering very much," said Aiden Applegarth, head of structured trade finance for East Asia at Union Bank of Switzerland in Singapore.

The causes of the problem are overextended local banks and the heavy, dollar-denominated debt load of companies in the Far East, where currencies have fallen sharply against the dollar.

The squeeze comes as the International Monetary Fund doles out billions of dollars in aid for South Korea, Thailand and Indonesia.

Also, the recent bankruptcy protection filing by Japanese food broker Toshoku Ltd has shaken confidence in Japanese commodities business.

Grains and sugar traders say South Korean buyers have told them they cannot get letters of credit from Korean banks.

"Korean banks are so shaky, they don't want to take any risks," a sugar trader said.

In addition, traders say international banks have refused to confirm, or stand behind, letters of credit from Korean banks.

Chris Hothersall, head of Asian trade services at HSBC Holdings' Hongkong and Shanghai Banking Corp Ltd, said his bank was being more selective but still sought business in South Korea.

"We don't say 'no' to every bank. We look on a case-by-case basis," said Hothersall, whose bank was among the top three in the region in trade financing.

"We are all a lot more cautious," he added.

South Korean sugar buyers, instead of offering letters of credit, were seeking to do business on a so-called cash against documents basis.

"The supplier assumes the buyer will pay when the documents are presented. The supplier is taking the buyer's risk. That will make trade more difficult," one banker said.

In South Korea where the won has nearly reached 2,000 to the dollar, trades for the purchase of corn from China may have to be deferred because feedmills cannot get financing, a trader said.

But the credit predicament has opened opportunities too, Hothersall said.

Companies which had been loyal to local banks were now seeking trade financing from international banks.

UBS's Applegarth said bank fees for letters of credit have risen 30 percent in some cases.

Another international banker said Japanese companies were increasingly turning to non-Japanese banks for trade financing.

"Japan Inc. is breaking down. Banks and corporations are coming to foreign banks now, which is very unusual on the trade side," the banker said.

Applegarth said the trend was for banks to become involved earlier and insist on more structured finance deals in which the buyer pledges assets as security.

"Those who have established track records will be OK, but many others will have to change," he said.

"For the next six to nine months I anticipate a rough ride for many players," he added.