Olympus Capital launches Asia structured credit business

"We have been looking at how commercial banks are impacted by the Basel III requirements, which have increased the cost of lending, as well as the euro zone crisis and the Volcker Rule," Mintz told AVCJ. "At the same time, hedge funds have focused on liquid investments post-global financial crisis. We are interested in the areas that are underserved as a result of this, particularly middle-market loans."

Olympus Capital Asia Credit (OCA Credit) has received a significant investment from the firm's third private equity fund, which closed in June 2008 at $750 million. The two divisions will operate independently of each other, with dedicated teams, and OCA Credit won't lend to the private equity fund's portfolio companies to avoid conflicts of interest.

The new business will provide structured loans of $20-100 million with 2-3 year maturities. While there is likely to be some activity in North Asia - specifically Japan, South Korea and Hong Kong - Southeast Asia, India and Australia are the focal points. Mintz sees Indonesia as a particularly attractive market, noting that OCA Credit is based in Singapore to be near its prime target markets.

Several private equity firms have highlighted the need for alternatives to pure equity investment strategies in Asia. For example, KKR established a non-banking finance company (NBFC) in India to provide local currency debt solutions while Indonesia-focused Quvat Management has a structured credit sideline in addition to its corporate PE funds.

The companies they invest in aren't necessarily distressed, they just don't see equity as an appropriate solution for their capital needs. Indeed, KKR's NBFC also functions as a "relationship builder," providing financing to entrepreneurs that might be open to PE investment at a later date.

"We are already seeing opportunities that just don't make sense as private equity deals," Mintz said. "There are times when an entrepreneur doesn't want a long-term PE partner who will dilute their ownership. They want transition capital to achieve a certain goal - maybe completing an acquisition or building a new factory - and they don't need the value-add that a private equity partner provides."

At the same time, OCA Credit doesn't want to cast itself as a mezzanine specialist, operating in areas where there are high interest rates, high risk levels and a lot of subordinated debt.

If bank debt and private equity represent the two poles of the financing landscape, mezzanine lenders sit somewhere in the middle. OCA Credit positions itself below mezzanine, providing debt and taking collateral, but not exposed to as much risk and return. It expects to hold and manage loans through maturity and doesn't want to enter loan-to-own situations. The pricing will reflect this balance.

"We don't see ourselves as the most expensive capital out there - there is a very good risk-return available without going for such high rates," Mintz added.

Nitish Agarwal has moved from Barclays, where he was managing director of global financing solutions for Asia, to become managing director and CIO of OCA Credit. He is joined by Gary Stead, previously founder and managing director of Australia-focused structured credit provider Shearwater Capital.

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• Topics
• Financing
• Financials
• South Asia
• Southeast Asia
• Australasia
• Structured finance
• Olympus Capital Holdings Asia
• Indonesia
• Southeast Asia
• India
• Australia