Private Credit Catches on in Asia as High Rates Squeeze Other Funding Routes

Yemi Tépé, partner and global co-chair of the Finance Group at Morrison Foerster is quoted in a recent article, “Private Credit Catches on in Asia as High Rates Squeeze Other Funding Routes,” published by Nikkei Asia.

The article explores how private credit, once a relatively niche strategy in Asia compared to other types of financing, such as private equity deals, bank loans, and initial public offerings, is becoming increasingly attractive to investors and companies as high interest rates make other fundraising routes more costly.

Private credit is gaining attention from a wide range of investors in Asia, including regional funds and private equity firms, asset managers and family offices. Some private credit transactions can offer private equity-like returns but with the added benefit of downside protection. Private credit can also be an attractive option for companies that want to avoid dilution by private equity or those who can’t get bank loans due to concerns about loan quality in a high interest rate environment.

The article identifies two main challenges for private creditors in the region, namely finding deals, and having sufficient certainty over legal frameworks. Developed countries such as Australia, New Zealand, Singapore, and Hong Kong with legal frameworks that provide greater certainty are being favored by more conservative lenders, whereas emerging markets may need to provide higher returns, as they are seen as riskier due to potential issues in getting hold of assets if there is a default. 

Morrison Foerster has recently been advising on private credit deals for clients in emerging markets such as Vietnam and Indonesia. Whilst the demand from companies for private credit lending is there, investors are cautious about lending to companies in these emerging markets.

Yemi explains, “A lot of the work that I’m doing right now is helping private credit understand those jurisdictions, understand the risks and work out how they’re going to navigate and how they’re going to get their credit committees comfortable.”

Read the full article.