Michel Lowy, co-founder and head of independent, HK-based investment banking business SC Lowy, argues that midcap companies in need of capital to support growth deserve a better set of solutions than the current investment banking environment is willing or able to offer.
May 18, 2014 | Michel Lowy
The distressed debt market is on the rise in Asia. In terms of year-on-year percentage growth, completed restructuring rose 83% in 2013, edging out Europe (82%) and significantly outpacing the US (30%).
Out of the total $173 billion in distressed debt restructuring in the world last year, the US totalled $90.4 billion, while Europe, Middle East and Africa reached $66 billion. Activity in Asia was $24 billion, 14% of the global total.
It’s worth asking why the market in Asia is such a small portion of the global pie.
A clue lies in the region’s success story. Asia is, after all, generally accepted as the world’s primary growth region, and it makes sense that less companies fail in growth economies. Yet it can hardly be argued that Asia has a minimal need for distressed debt finance in comparison to markets in Europe and North America. A more likely answer lies in the funding gap endemic across the region. Many companies—especially those in the midcap range of up to $1 billion in sales—have limited access to capital across the board, and fewer funding opportunities result in less restructuring.
It wasn’t always so. Prior to the Asian financial crisis of 1998, the larger banks in the region supported the midcap sector. Since then, businesses have been funding themselves via the region’s vibrant equity markets. Yet for the last ten to 15 years, midcap companies have had serious difficulty raising debt.
The consequences of this funding disconnect are not lost on the region’s multilateral bankers. The Asian Development Bank (ADB) launched a survey to explore the supply-demand gap for finance for small- to medium-sized enterprises in Asia, released in January 2014. The study polled 431 individuals in SMEs in China, India, Malaysia and South Korea. On the supply side, the ADB interviewed 105 executives at banks, securities firms, investment companies, venture capital companies and...
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Categories: Asia Pacific
, Cash, Treasury & Trade
, Retail Banking
, SME Banking
, Trade Finance
, Transaction Banking
Keywords: Michel Lowy
, SC Lowy
, Asian Development Bank
, Debt Raising
, Venture Capital