Distressed Investing Experts: Too Early for Asia

HONG KONG (Reuters) – Despite growing opportunities in the United States and Europe, it is too early to jump into distressed investing across Asia, according to a panel of regional experts.

The reason to wait is that there is still plenty more pain to come from Asian corporations, as corporate earnings across the region are being propped up by stimulus plans and bank lending mandates, panelists said.

“It’s going to be a while before true distress comes out,” Robert Appleby, chief investment officer at ADM Capital, said at a FinanceAsia conference here on Tuesday.

While loan defaults are expected to rise in Western regions as well, the restructuring and court systems there are seen as more dependable and predictable as compared to Asia.

For now, distressed investors and bankers are more focused on the United States and Europe.

That factor, plus a lack of clarity on how much further there is to fall in Asia has kept Asia distressed funds quiet so far.

The consensus of the panel seemed to be no major activity in Asia until at least the next three to six months.

“We’re going to wait and see how things cycle out,” said panelist Brian Chinappi, head of Asia acquisitions (excluding Japan) for RREEF Alternative Investments.

Distressed investors typically invest in struggling companies defaulting on loans. Where other investors would look to less risky bets, distressed funds are experts at turning cheap debt into big profits.

“In this cycle, we’re not seeing a lot of distressed opportunities,” said panelist Bernard Lau of Nomura Holdings (8604.T).

“At some point, it will materialise, but that will depend on measures by the governments,” he said.

Predicting economic drops comes easily to vulture funds, who profit from down cycles. Like most investors, they’ve been wrong before. But Asia’s once red-hot economy is slowing, even as governments try to keep businesses humming with state-backed loans.

Another obstacle for distressed money is that bull market financings done several years ago were poorly structured for the lenders, presenting little appeal to new investors.

“These were fair weather deals written on the back of a beer mat,” Appleby noted.

Chinappi agreed. “We’ve looked at some deals but we don’t know how to work them out,” he said.

Timothy Donahue of Blackstone Group’s (BX.N) GSO Capital Partners said he saw great distressed investing opportunities coming up in Australia, where restructurings have a “fairly predictable” route compared to those in China and India.

For Lau, the opportunities were in Japan’s property space but added that could be at least 12-18 months away.

By Michael Flaherty

(Editing by Mathew Veedon)