The amount of distressed debt in Asia Pacific is expected to increase, according to more than half the respondents to a KPMG and Clifford Chance global survey of 100 private equity professionals working in the distressed space.
Of those surveyed, 83 percent of respondents plan to either increase or keep the same their allocation to distressed debt in Asia, with only 17 percent expected to decrease allocations.
Among respondents who do not expect an increase in distressed debt, the vast majority said that they anticipate more special situations in 2012.
It was widely assumed by those surveyed that the European crisis is the reason distressed debt will increase during 2012.
“The European crisis has not affected Asian markets in the short-term, but a prolonged problem in Europe will adversely affect Asian markets and Asian business in the long-term,” said one respondent quoted in the report. “Asian markets could start feeling the pinch and slip into distress because many consumer and manufacturing companies still rely largely on the European business.”
There are contradictory views as to what effect the European crisis will have on the Asian private equity industry. Over half of the respondents agree that US and Asian banks will be able to provide “ample liquidity” but at a higher cost, where 39 percent believe there will be a capital shortage as European banks withdraw from Asia.
Richard Dawson, principal and head of debt advisory Asia at KPMG, said: “The European and US banks’ participation in the Asian loan markets has been falling for a number of years, and to date, the regional banks have stepped up and filled the void. The capital trend has already driven margins up and we would expect this trend to continue in the medium term.”
China and Japan topped respondents lists for providing distressed opportunities going forward, as did the financial services and real estate sectors.