Asia-Pacific’s corporate world is more capital-intensive than it was a decade ago. However private lenders are less affected by this as they focus on pockets of opportunities where market inefficiencies exist.
Corporates headquartered in the region account for 43 percent of the world’s largest companies by revenue, up from 37 percent, according to analysis by McKinsey & Company of the 5,000 largest companies worldwide between 2005-07 and 2015-17.
The flood of capital did not necessarily translate into an increase in profits. Returns on invested capital in Asia-Pacific declined to 7 percent from 9.7 percent between the periods analysed. The drop in the ROIC of Chinese firms was more sizable, falling from 11.4 percent to 6.8 percent. One reason for this is that the proportion of capital-intensive sectors, such as infrastructure development, has been higher in Asia-Pacific than elsewhere.
A spokesperson for Dignari Capital Partners, a Hong Kong private debt manager, says direct lenders are filling in the funding gaps despite the prevailing inefficiency in Asia-Pacific’s capital markets: “Unlike some developed markets, which are overbanked and see intense competition from alternative capital providers, there are plenty of opportunities in Asia, due to market inefficiencies and non-economic behaviours. Direct lending plays a critical role in filling the liquidity and funding gaps arising from these inefficiencies and behaviours.”