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.