Asian credit remains attractive for investors

“One thing that we often get asked by our LPs is, can you collect and does credit actually work in these jurisdictions?” Edwin Wong, managing partner and CIO at SSG Capital Partners, told the Hong Kong Venture Capital and Private Equity Association’s Asia Forum. “But for many of us who started our careers during the Asian financial crisis, when nobody was paying, that’s always been the bread and butter of what we do.”

While credit investment in Asia continues to present special concerns compared to other areas, such as currency volatility or political instability, industry participants feel that there has been significant progress on these fronts thanks to both improved economic understanding by policymakers and improvements in mitigating factors by experienced investors. Debtors in the region are also more understanding of the importance of honoring their obligations.

The greatest challenge to successfully investing in credit is creating a proper strategy. Investors must be confident in their ability to exit an investment from the moment they first commit, and be aware of the broader trends in the credit market.

“The difference between this strategy and every other strategy in private equity is that the timeframes are much shorter,” said Anil Gorthy, senior portfolio manager for Asia at Avenue Capital. “Credit is one asset where the longer you hold it, it doesn't necessarily get better, because credit has cycles, and if one breaks, you could find yourself holding a lemon. So a focus on exits is probably one of the most important things that drives the strategy.”

Gorthy and Wong identified India as a particularly exciting investment destination, given creditor-friendly measures implemented by the government in recent years such as the reform of the bankruptcy code. These reforms are attracting increased attention from global investors, but early entrants are likely to have an advantage due to their knowledge and experience with the market.

China also continues to be attractive, both from a direct lending perspective and for buyers of non-performing loans (NPLs). Kei Chua, managing director at Bain Capital Credit, said the country’s ongoing NPL sell-off was a twofold opportunity that could help his firm’s PE branch as well.

“Over the past 10 years Chinese banks have basically increased their loan book by tenfold, and the NPL ratio has not adjusted accordingly. So we think the opportunity here rivals the size of Europe potentially, and we've been actively executing on that,” said Chua. “The other backdrop is with banks effectively being held back and interest rates going up, it creates a capital solutions opportunity for us as well.”

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• Topics
• Greater China
• South Asia
• Credit/Special Situations
• GPs
• China
• India
• SSG Capital Partners
• Bain Capital Asia
• Avenue Capital Group