Tack Fat International, which makes clothing for Reebok and Gap, has asked banks to bid on refinancing a HK$400 million loan arranged last year, sources familiar with the situation said.

Tack Fat wants to cut its interest margin in half to 75 basis points over the Hong Kong interbank offered rate from the 150 basis points it has paid since signing the deal in March 2004. The firm would also pay banks an all-in fee, which includes deal-related fees and commission, of 80-90 basis points.

Many Hong Kong companies have taken advantage of low interest rates and fierce competition among cash-rich banks to refinance debt more cheaply. China Light and Power set a new low in May when it arranged a HK$6 billion syndicated loan that earned banks a minuscule 25 basis points in fees.

Developers Cheung Kong and Sun Hung Kai Properties have also succeeded in arranging loans that paid bankers as little as 30 basis points. ''It's a borrower's market,'' one banker said.

Hong Kong's smaller companies are now trying to do the same and Tack Fat is driving a hard bargain. In addition to cutting the interest margin in half, the firm is pushing to extend the maturity and relax the covenants on the refinanced loan. Banks often insert covenants into loan agreements, such as limiting future corporate borrowing, before agreeing to provide funds.

Banks, hard pressed to put idle cash to work, are reluctantly going along. A company source said one bank had already agreed to the terms and other bidders, if they hope to help fund the loan, are likely to follow suit.

Tack Fat announced plans to increase manufacturing capacity in China and Cambodia earlier this week to reduce its reliance on subcontractors. Outsourcing manufacturing eats into the firm's profits. Cambodia's quota-free status is appealing to garment makers after the US imposed safeguard quotas on Chinese garment imports.

Tack Fat plans to spend up to US$1 million (HK$7.8 million) this financial year as it opens 10 more stores worldwide under the Mudd brand. The firm bought 36 percent of Mudd in April.tim.leemaster@singtaonewscorp.com

mark.lee@singtaonewscorp.com