ASEAN KEY DESTINATIONS
December 5, 2008
Indonesia, China offers best bargains in bad loans
The survey, conducted among 100 hedge fund managers and proprietary trading bankers by distressed debt and leverage finance news service Debtwire, said that enforcing security and legal rights was also the most difficult in Indonesia and China.
South Korea and Australia were the next largest in terms of market potential, it said.
Rating agencies have been predicting a rise in corporate defaults in the coming months as slowing economic growth and flagging demand hurt company earnings.
Standard & Poor's said economic slowdown in developed countries would be the primary reason, because of the dominance of export-oriented economies in Asia.
Moody's Investors Service's has predicted the global speculative-grade issuer-weighted corporate default rate will climb to 4.3 percent by the end of this year and rise sharply to 10.4 percent a year from around 3 percent currently.
"China and Indonesia are seen as providing the most distressed debt opportunities ... because these are the countries that have been the destination for so much hot (mostly hedge fund) money over the last few years," the report said.
Australia will be popular because the predictability of its legal system will allow investors to enter into distressed situations with some degree of comfort, it said.
"Korea has a large portion of their debt in foreign currencies - the won's debt liability is getting bigger and is thus potentially a source of distress," it said.
On the flip side, respondents voted Taiwan, Hong Kong, New Zealand and Singapore as least likely to present opportunities.
The property sector was rated as one with the greatest distressed debt opportunities followed by financial services.
About 92 percent of the respondents said investment potential in stressed assets would rise in the real estate sector in 2009, with 76 percent saying opportunities in the financial services sector would increase.
On the other hand, only 60 percent felt there would be pickings in the telecom and utilities sectors, often seen as defensive investments by portfolio managers.
In terms of products, refinancings, private placements and leveraged buyouts were rated as most likely to dominate distressed situations.
A slowdown in the US economy was voted as the most likely trigger event for financial distress in 2009. Tighter credit markets and a slowdown in China were seen as the next two likely triggers.
With 95 percent of those polled expecting sourcing of funding next year to get more difficult, the survey revealed that private placements and loans would be the most popular routes accounting for 29 percent each.