Part 1 of a two-part blog series featuring insights from the Restructure with Foresight webinar hosted by Datasite and Debtwire.
Governments in Asia Pacific have so far responded to the coronavirus with various monetary and fiscal measures to help support their economies while temporary amendments to insolvency laws have also been made to help companies that, amid sudden cash flow crunches, are finding themselves unable to service their debt.
During our recent webinar, our panellists – James Dilley, Jason Kardachi, Ashok Kumar, Edward Middleton, and Desmond Chua – were led by Luc Mongeon, Managing Editor at Debtwire Asia-Pacific, in discussions around areas where financial stress is of greatest concern in APAC economies.
Together with over 500+ dealmakers and restructuring professionals from across the region, they shared their thoughts on the opportunities, challenges and outlook for APAC’s distressed M&A 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.
We asked dealmakers in APAC about their outlook regarding distressed M&A in the region, and the majority of respondents believe that it is here to stay for the foreseeable future.
“Based on Luc’s data, I can see the market is in the early days of shifting gears towards a full blown distressed situation,” said Desmond Chua, Head of Region, APAC at Datasite.
“Although we’ve got government stimulus to backstop the market and hopefully give companies more time to plan moving forward, we have seen project mandate-to-launch period extensions go up by 60% in the last 6 weeks.
“As we’ve learned from the previous recession, deals are stalling, and clients are hitting the pause button to assess the quality of a deal. We also have global data showing an increase in distressed projects from 16% six weeks ago to 23% as of yesterday.”
Given COVID-19’s impact will likely have a longer and more profound effect than was anticipated, it is almost certain restructurings and bankruptcies will skyrocket around the region. Dealmakers see liquidation as a last resort in the next 24 months. Instead, they think non-performing loans (NPLs), debt financing and administration will dominate the restructuring market.
With the current situation forcing almost everyone across APAC to work remotely at varying degrees, the technologies that enable people to get the job done securely and efficiently are more critical than ever especially when making deals virtually.
Dealmakers believe that smart technologies, such as machine intelligence around categorization and indexing, as well as the ability to load large volumes of data quickly are top of mind.
James Dilley, Partner at PwC China, talked about the sell side’s labour-intensive processing of NPL sales in China and explained, “with the flow of data, we’re looking at electronic copies of loan files sent via emails, via WeChat messaging, going and sitting in physical meetings with sellers. None of the AMCs are using western-style data rooms. It is a big barrier that prevents international investors scaling up the amount of capital they are deploying into NPLs in China.”
Chua added, “Up to this day, when our Head of China tells me that NPLs are conducted over WeChat and email, it continues to blow my mind. Some countries require the data to be secure or stored for close to a couple of years after the deal is completed. It begets the question for foreign investors is more about reliability of information, and compliance and security of the data.”
Read Part 2 – Expert Insights
Gain insight from our panel of experts as they take stock of the response to date in Asia Pacific’s major economies and consider the areas where financial stress is of greatest concern, including the region’s distressed debt market, bolstering liquidity, and the effects of economic stimuli and insolvency laws.