SINGAPORE Trends and Developments Contributed by: Susan Wong, Christy Lim, Bernadette Tan and Clarence Kang, WongPartnership LLP
Introduction The first half of 2025 has seen relatively steady financ- ing and acquisition activity, with momentum partly driven by the much-anticipated United States Federal Reserve interest rate cuts. However, while optimism abounds, a healthy degree of caution and uncertainty still pervades the financial markets, as market partici- pants remain wary of the temperamental US trade tar- iffs imposed on countries in Asia and how this might affect the commercial viability of transactions in the region. Market participants have warned about the potential for a global recession and Singapore expects weaker growth this year, with original projections of 1-3% for 2025 lowered to 0-2%, compared to 4.4% in 2024. Notwithstanding, there have been positive developments, with Singapore’s financial sector grow- ing from 3.1% in 2023 to 6.8% in 2024 and the total asset growth in its banking sector also increasing at a compounding annual rate of 6.8% from 2021 to 2024. Key developments in Singapore’s financing landscape include the rapid rise of private credit across Asia, evolving fund-finance solutions, an expanding envi- ronmental, social and corporate governance (“ESG”) agenda from impact to transition finance, increased data-centre financings, renewed complexity in devel- opment and real-estate financings and growing Islam- ic finance offerings, reinforcing Singapore’s standing as a resilient regional financing hub. Private Credit Private credit has gained increased traction in recent years globally and in the Asia-Pacific region, with market participants forecasting that the demand for, and supply of, private credit is here to stay and will continue to grow.The attractiveness of private credit is multi-faceted, with some of the key reasons being portfolio diversification and reduced exposure to market volatility. Asia’s position as a growth market has driven strong investor interest in private credit across the region. Some sovereign wealth and pen- sion funds in the region have begun exploring the establishment of private credit platforms to source deals and the statistics on growth and activity are abundant. For instance, Temasek (Singapore’s state investment company) announced in late 2024 that it had established a wholly-owned private credit entity, with an initial portfolio comprising direct investments and credit funds totalling SGD1 billion and Singapore
has announced, in its February 2025 Budget, a SGD1 billion Private Credit Growth Fund to provide more financing options for high-growth local enterprises. The recent private credit boom has also led to private capital firms, which once catered almost exclusively to institutions and ultra-high-net-worth individuals, increasingly targeting retail investors, with the Mon- etary Authority of Singapore (the “MAS”) currently seeking public feedback on a proposed regulatory framework that would grant retail investors access to the private credit market with proper safeguards in place. This initiative appears to be timely, as even conservative estimates place retail demand for private credit in Singapore at up to SGD100 billion. The market has seen private credit transactions in several principal forms, including senior lending, uni- tranche debt, loan-on-loan financing and mezzanine debt, each with distinct risk-return and structural characteristics, solidifying the appeal of private cred- it to various investors. Senior debt, which occupies the top of the capital structure, is a popular form of private credit financing, typically offering lower yields and lower risk for financiers. Unitranche debt com- bines senior and subordinated tranches into a sin- gle facility, delivering a streamlined one-stop loan with interest rates that fall between pure bank and pure private-credit financing and faster execution for transactions such as leveraged buyouts. The loan- on-loan structure (a structure increasingly adopted in real estate transactions) uses a special purpose vehi- cle (“SPV”) to serve as the lender that extends a first loan to a borrower. A second loan is then typically provided by a bank or financial institution that does not want direct exposure to the underlying asset, with security typically being an assignment of the SPV’s rights. Such a structure enables the bank or financial institution to take senior exposure without direct asset risk, while private credit lenders can potentially earn higher returns. Private credit may also take the form of mezzanine debt, which sits below senior debt, often incorporating debt-equity features (including conver- sion rights). This is used where senior finance is una- vailable and commands higher yields to compensate for greater risk.
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