Distressed opportunities offset by competition

Distressed funds in Asia are struggling to raise money while other sources of capital are competing with private equity.

Special situations funds are finding fundraising difficult, said Shyam Maheshwari, partner at SSG Capital, speaking at the PE Asia Forum 2012 earlier this year. “The competition has shrunk, and so has the capital with that. Only a handful of players are left that have capital and experience.”

Distressed funds have been entering the market, but finding it difficult to secure commitments from LPs. AION, the India distressed venture by ICICI Venture and Apollo Global Management recently did a first close on $350 million on its $750 million fund, for which it had to decrease its target from $1 billion due to lack of investor interest, PE Asia reported earlier.

Competition is originating from non-private equity players, such as family offices that have adopted a growth capital or private equity model, explained fellow panellist Sarit Chopra, managing director of mezzanine and alternative solutions at Standard Chartered Bank.

Chopra pointed to the wealthy families of Indonesia to illustrate his point, saying that some good opportunities will be snapped up by family offices. “To be honest, their deal origination is far more superior than a fund manager who doesn’t belong to that close-knit network.”

Opportunities are rife in Southeast Asia. In Indonesia, companies that want to develop resource assets but can't fully fund the projects are looking for equity bridges for the next two-three years, said Chopra. Malaysia and Thailand have a lot of special situations due to economic distress affecting cyclical sectors such as oil and gas. Thailand also has opportunities resulting from the floods last year.

“The approach that we’ve taken is, we’ve set up local teams based in Bangkok and Kuala Lumpur, and we use them as the originators for our deals,” Chopra said.
Standard Chartered usually does deals $20-$30 million in size, Chopra explained. Private equity can be useful as the last mile of financing or if a business is “stuck and just needs 12-18 months [financing]” as local banks can be slow at providing finance.

However, China is presenting opportunities as well. “The opportunity set in China is very broad,” said moderator David Madden, managing partners at DAC Financial Management. “But the good opportunity set is narrower and the structural issues are still the largest hurdle to providing credit to domestic borrowers from an offshore position.”