Bank sell-downs drive Asia credit opportunities – AVCJ Forum

"This is a relatively modern phenomenon for the region. Beforehand, depending on which jurisdiction you were in, the banks would just grasp onto it and work it out internally," said Matthew Turner, head of Australia and New Zealand senior debt for Intermediate Capital Group (ICG). "Now with greater transparency, and because they've got to raise four times the capital against non-performing loans, they're more incentivized."

The perceived risk of NPLs is a primary motivator for banks to reduce their portfolio, which means private lenders can be more flexible on loan structuring and still see a positive exit. China-focused distressed debt specialist DCL Investments, which spun out from Shoreline Capital in 2015, renegotiated a loan to a chemicals company to pay off 40% of the principal and interest in four years, with the rest of the principal converted into equity.

Regional and global LPs are taking note of the opportunities in credit as well. The asset class has proven attractive for investors that need fixed-income style returns and have found such assets hard to find in increasingly crowded Western markets.

"Private credit is one of those places that offers a scale opportunity to generate income all over the world, and that's especially true in Asia as investors look to diversify their portfolios away from just the US and European private credit markets," said Jonathan DeSimone, managing director at Bain Capital Credit. "Asia represents an even bigger opportunity in the long term to provide capital in the flexible format that I think very few private capital providers are used to providing."

Investors feel that as banks push to clear their books of NPLs, they are likely to include assets in the sales that are actually still strong. Lenders that play their cards right can end up getting very attractive terms for companies that are fundamentally headed in the right direction.

"I think a lot of the time you've got businesses that are not necessarily stressed. They're underperforming, but with an appropriate capital structure – what you actually have is very stressed bankers. And that creates excellent opportunity," said Turner.

The AVCJ Singapore Forum is taking place on July 19-20. For more information, go to www.avcjsingapore.com.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Southeast Asia
• Greater China
• Credit/Special Situations
• GPs
• LPs
• Singapore
• China
• DCL Investments
• Bain Capital Asia
• AVCJ Events