ADM Capital, a pioneer in Asian distressed investment, has been turning its focus towards special opportunities financing, where it aims to fill a void created by a flight of capital by foreign lenders, namely those from Europe.
“We’re finding that, because of the removal or withdrawal of capital by foreign banks from Asia, it’s left a gaping hole in structured finance,” says Christopher Botsford, ADM chief executive.
Eurozone banks withdrew about $60 billion of lending to the sector in the second half of 2011; over a three-year period, the figure could add up to about $260 billion, he notes.
“While the firm was started around the distressed market, post the 1998 crisis, since then we’ve mutated with the market,” adds Botsford. “There’s been less distressed [deals] in Asia because the economy’s done very well. So our market has moved much more towards special opportunities: putting money where otherwise money isn’t available.”
Hong Kong-based ADM has launched a lending facility in partnership with the International Finance Corporation (IFC) that will provide loans to financially stressed mid-sized Asian companies that have been left in the lurch by a dearth of financing from European banks.
The Asia Secured Lending Facility provides emergency loan financing to companies in China, India, Indonesia, the Philippines, Sri Lanka, Thailand and Vietnam. The money is intended to be put towards stalled projects, critical investments or the restructure of balance sheets.
ADM is managing the facility, which aims to raise $300 million through external investors. IFC and Arch Reinsurance – a subsidiary of $5.2 billion insurance firm Arch Capital Group – are each providing $50 million in seed capital. The facility will have a lifecycle of eight years.
Investors take part though a syndicated loan facility which has a revolving senior tranche, plus a junior tranche. The senior tranche is being targeted at banking institutions, particularly those within Asia.
A local bank in the Philippines, for example, would find it difficult to do direct lending outside of the country, says Botsford. “They can look at this [facility] as a very safe alternative."
The junior debt, meanwhile, is aimed at investors such as institutions and family offices “that like the quasi-private equity return profile”, says Botsford. The junior tranche has a targeted return of 20-30%.
The facility is not a big departure for ADM, which takes its name from the acronym Asian Debt Management. In recent years it has expanded its emerging markets focus to Eastern Europe – particularly in Turkey and Kazakhstan – and has moved from being a hedge fund manager towards running private equity-structured vehicles.
In 2009, it restructured flagship hedge fund Galleus, which was renamed Galleus I, and created Galleus II, which comprises a series of managed accounts.
The original Galleus fund was put into a side pocket after the 2008 crisis and has since been liquidated, says Botsford.
ADM has $1.7 billion in assets under management under a range of products, including open-ended funds and private equity-style vehicles.
“Pre-crisis, Galleus was a much bigger fund, so we were perhaps more active in the hedge fund space,” says Botsford. “Now we’re dominated by long term money...but that’s good for the stability of the firm.”