SINGAPORE Trends and Developments Contributed by: Doos Choi, Mayer Brown
What May Lie Ahead It is difficult to ignore the sheer size of the credit market in Asia and some of the challenges faced by private credit in the region can be said to pre - sent opportunities in equal measure. Traditional bank loans have dominated the regional lending landscape. This is in stark con - trast to other markets such as the US where the non-bank credit market can be seen to be as big as (if not bigger than) the traditional bank loan market. By this measure alone, there is some way to go before private credit in Asia can be said to have achieved a state of equilibrium. Competition amongst banks for mandates on loan issuances by familiar names can be intense, leading to pricing compression which will not be attractive for private credit. Again, the challenge gives rise to an (arguably much bigger) oppor - tunity set. With banks so focused on the serial issuers and MNCs in the region, even highly suc - cessful SMEs can struggle to get their attention. This can be a fertile hunting ground for private credit; indeed, the challenge is possibly more about filtering the sheer volume of demand to find the right investment case to match a given risk profile and investment strategy. Despite the dominance of bank lending when it comes to the larger MNCs, they need not be off limits for private credit. Flexibility and creativity in structuring a loan in order to achieve a particu - lar commercial outcome for an issuer at a certain point in their economic cycle (which a traditional bank may find difficult) can give private credit the upper hand and at the same time sidestep the pricing pressures associated with the highly competitive bank loan market. The lack of homogeneity in regional laws and regulations as mentioned at the outset may pre -
sent a higher bar to entry (good news for those who have been active in the region for some time already), but this diversity in markets results in a level of systemic demand for flexibility and crea - tivity – a space in which traditional banks are not well suited to play. Asset-based lending (in this context we mean receivables-based lending) is gaining popular - ity amongst the larger fund managers. Asia is, after all, a global trading hub. There are in fact a number of regional funds which have always focused on this space (very successfully) so it will be interesting to see how this growing inter - est will manifest itself. Data centres are a hot topic globally and Asia is no exception. Private credit fund managers which are prepared to take on construction risk may find increasing opportunities arising from infrastructure and energy transition efforts in the region. Whilst the fund finance market in Asia is not as mature as in the US or UK/Europe, the intersec - tion of private credit and fund finance is an inter - esting area. As investors in private equity funds continue to seek distributions and liquidity, we see a growing demand for financing solutions to solve for this issue, particularly at a time when traditional bank debt is in short supply. Interest in Asia private credit remains high and for good reason. As noted above, there are a number of market fundamentals which point to untapped potential in the region. There are regu - lar reports of new strategies and platforms being launched with regional SWFs coming into the fray – Temasek recently announced the estab - lishment a wholly owned private debt platform with an initial portfolio of USD10 billion com - prising of both direct investments as lender of
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