Asian developers offer biggest opportunities

ASIAN debt managers expect real estate developers and companies in China, South Korea and Australia to provide them with the most investment opportunities next year, an industry survey shows.

Economic recession, slowing consumer spending and shrinking bank lending indicate a growing number of Asia-Pacific companies will face difficulty refinancing debt next year, according to a survey of 100 hedge fund managers and proprietary trading bankers published by Debtwire yesterday.

“This will be a prolonged process of unwinding the 25-year bull market,” Singapore-based Robert Schmitz, head of restructuring for Asia with N M Rothschild & Sons, said in the report. “We have to be mindful that the bear market that started over a year ago could last about one-quarter to one-third the duration” of the bull market.

The debt refinancing risk for Asia-Pacific companies is becoming a “growing concern” as the global credit crisis worsens, Standard & Poor’s (S&P) said on Dec 2.

The region’s companies have US$368 billion ($562 billion) of rated debt maturing from the fourth quarter of this year to the end of 2011, led by Japan and Australia, S&P said. That includes US$113.9 billion due next year and US$10.9 billion owed by real estate companies.

Ninety-two per cent of survey respondents said they expect increased financial stress among Asian property companies next year, while 76 per cent expect more distress among financial companies and75 per cent among industrial and chemicals companies, the report shows.

Telecommunications companies and utilities are expected to have the smallest rise in distressed debt.

More than half of respondents said rising defaults will emerge in India in the next two years, while about a third forecast increasing corporate distress in South Korea as Asia’s fourth-largest economy wrestles with a falling currency and difficulty borrowing overseas.

“Going into their downturn, Korea looks like Detroit in the ’70s but without the good music,” Mr Scott Bache, Hong Kong-based partner for Clifford Chance LLP, said in the report.

Real estate developers account for nine out of 13 Chinese borrowers that are financially stressed, and owe half the companies’ US$16 billion in combined debt, according to the report.

In Japan, 14 of 25 companies in default are developers, while in Australia, US$14.5 billion of a total US$32.5 billion in stressed and defaulted debt is related to real estate.

Source : Today – 5 Dec 2008

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