23 Asian Legal Business | November 2024 emerge as regional hubs for private credit activity. “In Singapore, there are clear, publicly available records of registered security granted by Singapore entities and these can be immediately retrieved online via ACRA. By contrast, in certain other Southeast Asian countries, their equivalent security registers may not be publicly available and privately held security registers may not be up-to-date or correctly maintained,” says Seah. Singapore’s IRDA also provides a clear workout regime for restructurings and protections against problematic transactions. Singapore is also an attractive jurisdiction from a structuring perspective, Brereton adds. “Many private credit lenders will favour deal structures that involve a Singapore-incorporated holding company providing a singlepoint enforcement, particularly where the underlying operational assets are based in less predictable jurisdictions such as Indonesia or Vietnam,” he explains. Hong Kong’s private credit market has experienced substantial growth, with assets under management increasing from approximately $15 billion in 2020 to $25 billion by the end of 2023. The market is gaining momentum as banks tighten lending criteria amid pressure from declining property valuations. The mid-market segment, where private credit deployments have grown by 75 percent year-over-year in 2023. Alternative lenders are stepping in to fill the approximately $8 billion funding gap left by traditional banks’ reduced lending appetite. The trend has been further amplified by the growing presence of regional private credit funds, with over 15 new funds establishing operations in Hong Kong since 2022, collectively raising more than $12 billion in dry powder specifically targeting opportunities in the Greater China region. India has met strong demand with dynamic regulatory measures fostering a thriving private credit environment. Indiafocused private debt funds grew to $17.8 billion in 2023 from less than a billion in 2010, with predictions of accounting for 30 percent of private credit raising by 2025. Key among India’s regulatory reforms has been the introduction of credit protection regimes under the Insolvency and Bankruptcy Code, 2016, Seah points out. “While the IBC is certainly not new legislation, its impact has been monumental since its inception in 2016 and it has enhanced creditors’ negotiation power and, in turn, encouraged Indian debtors facing distress to participate in consensual out-of-court workouts, which often involve restructuring both the financial aspects and the operational aspects of the debtor’s business,” he notes. Adapting to SE Asia markets Southeast Asian markets present a more nuanced picture, with each jurisdiction offering unique challenges and opportunities. While there is interest in Indonesia and Vietnam, loan deployment is still nascent, as private credit funds often favour India, Japan, and Korea for superior risk-adjusted returns. “That said, we are seeing the establishment of private credit funds with a specific South-East Asia strategy,” Seah notes. Given this increasing demand, lenders have adapted their approach in the region. “Onshore security in these jurisdictions is often viewed as ‘defensive,’” Brereton explains. “Lenders don’t expect to proactively enforce this security, given the challenges involved, but they will take it anyway to ensure that they at least have a level playing field with other creditors.” They focus on monitoring cashflows and mitigating risks, often favouring structures with offshore holding companies for predictable security enforcement, Brereton adds. These legal considerations dovetail with the unique cultural dynamics and relationship-based business practices that characterise Asian markets. “Given the importance of local relationships to the success of many businesses in Asia, we have seen private credit lenders increase the level of pre-deal counterparty diligence,” Brereton points out. In certain Asian jurisdictions, a local presence is critical, adds Seah. “Deal team members who are on-the-ground who understand local practice and culture can often more readily satisfy the requirements of regulatory approvals,” he notes. “With private credit funds being laser-focused on downside risk, they must understand these local nuances to be able to properly weigh the risks of financing Asian borrowers in such jurisdictions against the value of anticipated returns.” The importance of local relationships is particularly evident in Southeast Asia’s family-owned businesses, where successful private credit deals require a deep understanding of both financial and cultural factors. “Given the sensitivity and personal investment of those shareholders in that business (often made over decades), any lender-side solution should always be proposed early in the financing process and navigated with care, respect and adherence to local cultural norms,” says Seah.
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