The Star reports that Wall Street Banks are directing their funds towards start-up technology companies in China with values pegged over $1 billion. These banks are lending billions to Chinese tech unicorns after their billion-dollar loans to start-ups in the United States proved to be failures.
Wall Street banks such as Morgan Stanley and Goldman Sachs Group Inc. were directing loans to American tech firms such as Uber Technologies Inc. However, these loans led to the loss of money on the part of the lending institutions.
To remedy these losses, banks have funnelled their lending funds to Chinese technology unicorns such as Bytedance Ltd., which owns TikTok a video-sharing app. The company borrowed $1.3 billion in the first quarter of 2019. Reports say that the loan is helping the firm raise up to $1.4 billion for two tech start-ups in China.
The Star notes that these Chinese borrowers have just newly ventured into syndicated loans.
Lenders are expecting these lending activities to create more profitable services such as public offerings. This expectation was set because of the lenders’ experience with US unicorns such as Uber and other similar firms.
According to reports, Morgan Stanley, the primary lender for Uber’s initial public offering (IPO), was able to earn $41 million for letting the company borrow money. This comes a year after the bank lent Uber $1.1 billion.
While lenders are optimistic about these activities, Chinese borrowers also prefer loans as they are easier to arrange without disclosing too much info to the public. Moreover, the low cost of borrowing also makes loans appealing to these unicorns.
Bytedance was able to get its loan for an interest margin of 280 basis points. At that time, the company had a value of $75 million.
Meanwhile, experts say that the US-China trade tensions can affect the repayment for banks.