HONG KONG SAR, CHINA Law and Practice Contributed by: Doos Choi, Pierre Dzakpasu, Ester Chow and Aditya Kurtakoti, Mayer Brown
1. Private Credit Overview 1.1 Private Credit Market
• Hong Kong’s status as a gateway to the PRC has served it well in the past, but with inves - tor sentiment having cooled on China, activity levels have dipped; • bank loans remain the dominant/preferred option for many issuers; and It is not so easy to dissect the private credit market in Asia by reference to categories which are more established in other parts of the world (eg, direct lending, distressed). Perhaps the best way to describe the majority of the private credit demand in the region is “opportunistic”. This is reflective of the bespoke nature of each invest - ment case which is rarely “cookie cutter” in the same way as, for example, direct lending strate - gies elsewhere in the world. • pricing/perceived relative value. 1.5 Junior and Hybrid Capital Junior and hybrid products certainly form part of the regional private credit universe which can also include preferred equity. 1.6 Sponsored/Non-Sponsored Debt Private credit providers in Hong Kong are not focused primarily on private equity sponsors and their portfolio companies, not do they provide capital to public companies and/or founder- owned companies. There are a number of pri - vate credit fund managers who will gravitate towards that segment but given the competition which they can face (from the bank loan markets in particular), it is not the primary focus for many of the funds. 1.7 Recurring Revenue Deals and Late- Stage Lending Private credit providers are not active in recur - ring revenue financings in Hong Kong.
As is the case for many businesses, Hong Kong is a destination for private credit providers pri - marily as a hub for Northeast Asia. That is not to say that there are no opportunities within Hong Kong itself. Indeed, some high-profile situations have been seen, such as The Corniche, but by and large, the main opportunity set for private credit in Hong Kong is China. No surprise then that macro-economic headwinds and geopoliti - cal tensions have served to temper investment appetite. The main opportunities within Hong Kong itself have been in the real estate sector. 1.2 Interaction With Public Markets The public debt markets in Asia are very much centred on large corporates and global or estab - lished regional financial sponsors and unlike other parts of the world, loans (and not bonds) represent the majority of the debt market. When those markets are open for business, they will be more competitive than private credit, and whilst it appears that public debt markets in Asia have showed signs of recovery towards the end of 2024, they have not come back in a way which would result in such refinancings being com - monplace. 1.3 Acquisition Finance Bank lending remains the dominant and, for many sponsors, the preferred form of acquisi - tion financing in Hong Kong, Singapore and the boarder Asia market. The space for private credit in these situations mainly lies in subordinated tranches in the capital structure. 1.4 Challenges Challenges to the expansion of the private credit market include the following:
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