15 Mai 2020

Restructure with Foresight: Potential, Challenges & Outlook in APAC - Expert Insights

By Robert Torio, Content Marketing Manager, APAC

Part 2 of a two-part blog series featuring insights from the Restructure with Foresight webinar hosted by Datasite and Debtwire.

 

During our recent webinar, Luc Mongeon, Managing Editor at Debtwire Asia-Pacific led our panellists – James Dilley, Jason Kardachi, Ashok Kumar, Edward Middleton, and Desmond Chua – in discussions  on areas where financial stress is of greatest concern in APAC economies.

They discussed topics and answered questions including:

  • Bankruptcy guidance: In addition to monetary and fiscal measures governments across Asia have taken to ease the strain of COVID-19 on corporates, various governments have amended insolvency laws. What are the implications of these amendments and what will this mean for insolvency markets in Asia?
  • Non-performing loan portfolios – is the Chinese NPL market going to become more attractive for foreign investors than it has in recent years? What changes and improvements to the overall infrastructure for NPL investments are needed to create a deeper NPL market in China?

 

State of the Market: Hitting the pause button, expecting Q4 to show true impact

According to Debtwire, in terms of bond volumes and loan volumes in APAC, they recorded fairly good high yield bond issuance in January, then it started to drop off a little in February.

“That’s mostly because of the Chinese New Year holidays,” explained Mongeon. “Then we go into March and April and things really start to fall. In April, high yield bond issuance was down 90% year-on-year from US$14.5bn to US$1.45bn. Our loan data, which includes investment grade, shows countries such as Singapore, Hong Kong and Australia with 30% to 60% drops in the amount of loan issuance."

James Dilley, Partner at PwC China, noted that whilst liquidity hasn’t dried up, particularly for better quality issuers, interest spreads that almost all companies are being quoted have increased: “Even in stressed sectors – for example aviation, we’re seeing deals that have been pulled and different groups of lenders are coming in, but the access to bank finance is still there. Yields and spreads for stretch senior deals have gone up from maybe a LIBOR plus 100 [basis points] up to LIBOR plus 500 or 600.

“Whilst issuance volumes in the US dollar, high yield bond market have come down, that’s not the case in China. There are highly levered Chinese developers that are still able to issue onshore RMB-denominated at rates of 7% to 9%. So I think it’s not as nuanced to say there is no liquidity in the market and companies can’t access finance – they can. We expect there will be more distress and that will come through as some of the government measures ease off in 3-6 months’ time.”

Ashok Kumar, Director and Founder, BlackOak LLC, added that for Singapore, there is liquidity on the side waiting to come in. “If you look at where we are now, the pause button has been pressed. All the government measures that have been put in have a finite period of support, at best the third quarter of the year. The impact on balance sheets hasn’t been made known but will come soon enough. I think we’re going to see the problems coming up in the last quarter of the year.”

Jason Kardachi, Managing Director at Borrelli Walsh, offered a slightly different perspective. “We thought the same thing where the governments are just kicking the can down the road and delay activity till later in the year. But there are a few things where we are seeing a lot of work and a lot of enquiries, such as from PE sponsors who want to get ahead of the curve. They want to appoint people and talk to the banks. Even if there’s no immediate solution, they want to engage and want to address the path forward.”

Restructuring options: From NPLs and debt financing to administration and liquidation

For many investors looking to explore the opportunities that will arise in the coming year, it will be essential to understand the different economic, governmental and legal frameworks of each country in the region, and how risks can be mitigated.

“While deal volumes are not as large as we have anticipated in APAC, we do observe companies across sectors getting market ready in various states,” noted Desmond Chua, Head of Region, APAC at Datasite.

Edward Middleton, Managing Director, Hong Kong at Houlihan Lokey offered his view regarding the number of distress cases in APAC, given what governments around the region are doing coupled with the typical behaviour of entrepreneurs and promoters.

“It’s actually not surprising that we haven’t seen the same kind of uptick in distressed opportunities or cases in Asia Pacific as perhaps you have seen elsewhere in the world. In the US, people are so used to seeing companies going to Chapter 11. APAC governments have put in place both macro and micro measures in an effort to stave off the worst,” explained Middleton.

Dilley noted during the discussion about NPLs, “However this current forbearance period evolves and plays out, there will almost certainly be a greater supply of NPLs in China and other Asian markets. The challenge in China NPL investing has never been about the volume of supply, it’s about how do you access that supply and the relative immaturity of the onshore servicing ecosystem.”

 

Read Part 1 – Pulse of the Market

Dealmakers across APAC share their views about the market, the types of restructuring that will be prevalent in coming months, and the technologies that would help them the most to navigate this storm.

 

Restructure with Foresight Webinar

Watch the live briefing Restructure with Foresight – Potential, Challenges and Outlook in APAC on demand and learn more about how economies across APAC are responding to the COVID-19 crisis.

Watch Webinar

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