Banking, Capital Markets, Funds Management, Regional Asia - Friday, July 3, 2009 12:56 - 0 Comments

Making sense of distressed debt in Asia – IFR

IFR magazine, July 2009

Is distressed debt in Asia an opportunity now, an opportunity to come or an opportunity missed? It’s all of them. It just depends on what part of the market you’re looking at. While restructuring specialists are only now beginning to see work coming through, those looking for the bottom of the market for distressed credit have probably already missed it.

Asia’s market and corporate behaviour has been consistently different from that in the US and Europe. Banks haven’t collapsed, nor has residential property on any widespread scale, and those countries with significant domestic demand are still boasting GDP growth of better than 5%. But it’s not immune: Standard & Poor’s managing director Diane Vazza noted in June that the number of corporate defaults in Asia Pacific in 2009 to date, at nine, already matched the all time record from the Asian financial crisis in 1998. This, Vazza says, “indicates a buildup of credit quality weakness unlike any the region has experienced since the end of its last full-blown financial crisis.” Negative bias – a forward-looking indicator S&P uses to assess the potential for downgrade – has risen to 32%, its highest level since 1999. “Even though Asian companies came into this period with generally lower leverage than their western counterparts, severe disruptions to exports continue to pose stark profitability challenges,” Vazza says. “Covenant headroom has also become narrower among corporates from weakening valuation of assets and intangibles.” Continue…

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