‘Considerable’ scope for growth in private credit fundraising in Asia-Pacific? The market’s recent surge
Lending from third-party sources is popular in many markets, and now the trend is coming to the region, with Hong Kong leading the charge – HSBC and Baker McKenzie weigh in
Private credit fundraising, which taps institutional and individual investors rather than major banks, is widely used in the US and Europe and is now beginning to gain traction in Asia-Pacific.
Such funding has become a powerful option for companies that are not ready for bank loans or public bond markets, Hu Bo, HSBC’s head of private credit, Asia-Pacific, wrote in a recent report.
The option allows borrowers to raise funds without relinquishing ownership, as with private equity. Furthermore, such debt does not generally require the stringent terms of a bank loan, and offers flexible repayment terms without the need for convertible or venture debt.
The scope for growth in Asia is “considerable”, says Hu. The private credit market almost doubled in size globally to US$1.5 trillion between 2018 and 2022, but in Asia-Pacific, banks still account for 77 per cent of loans, compared to 20 per cent in the US and 12 per cent in Europe.
Hurdles thus far have included operating across Asian countries, which can be difficult given the region’s diverse cultures, languages and business practices, notes the Alternative Credit Council. Local connections can help, but those relationships are often personal rather than institutional. Without established broker networks, securing private credit takes considerable time.
At the same time, a higher risk-return profile can make private credit a more volatile investment than bonds – but SMEs may find the higher cost of private lending worth it if they can borrow with more flexible terms.
“Many [private lenders] target mid-cap financing to SMEs and venture capital firms,” said Kenneth Ching, a partner at international law firm Baker McKenzie. “Private credit does come with higher pricing but they can finance deals that banks cannot, as well as offer additional flexibility that banks would not be willing to give.”
