As the COVID-19 pandemic continues to batter businesses around the world, alternative financing providers believe there is still time before opportunities in this crisis start to become evident.
“Probably in the early days of this pandemic we would have thought that illiquidity would be an opportunity…helping companies that had a liquidity crunch. But the central banks globally have been so free and liberal with lending. Lending terms are more relaxed and easier than they were pre-pandemic,” ShawKwei & Partners managing director Kyle Shaw said at DealStreetAsia’s latest webinar on alternative financing on Thursday.
Aside from bank loans, the equity market is also seen as very strong. Thus, for those companies that need support for growth capital, there are cheaper alternatives than private equity (PE) that are readily available, he said.
His co-panellist and Indies Capital Partners managing director Harold Ong was quick to point out the liquidity may not always exist in “every single pocket.”
“Banks are being very, very careful with where to put capital. Obviously they’ve been told to try and support businesses to give holidays on repayments and so, they’re not really in the mood to take on a lot of new credit either,” he shared.
The Indonesia-focused asset manager focused on private credit and special situations expects more opportunities to emerge in the next three to 12 months. “Some of that real economy impact probably has not happened to its fullest,” Ong said.
“There’s also this dichotomy between certain businesses that are doing better in this environment and those that are not,” he noted, adding that tech businesses will continue to seek financing, mainly for growth capital and not for liquidity issues or rescue financing.
Indies Capital, which raised more than $100 million for the first close of its third flagship fund earlier this month, prefers to back “blue-chip type” companies with steady underlying cash flow.
Shaw, who sees opportunities when business owners seek succession plans or when companies look for consolidation, said the pandemic has been very erratic and opined that there could be a “W-shape recovery.”
“I would say ‘stay tuned’ because this pandemic has been very erratic and perhaps we’re going to have a W-shaped recovery, where we go up and down, up and down, and certainly at some point, the liquidity spigot will be turned off,” he said.
Meanwhile, Xen Technologies co-founder & group CEO Katrina Cokeng said that the current crisis has created a “pretty big shift” among the full-fledged alternative investment platform’s client base, moving from longer-term close-end fund opportunities to shorter-dated opportunities with more open-ended structures.
Investors are moving away from earlier stage deals and riskier venture capital opportunities towards private credit, income-oriented types of products.
“Along with the generational shift of wealth among the Asian families, people are looking to have a more organised structure and trying to invest in things on a more systematic basis,” she said.
The crisis has also encouraged investors to diversify their geographic exposure, especially those based in Greater China. “I think this has been a fairly common theme for the last 12 months, but probably more accelerated today,” she added.
Cokeng shared that Xen Capital’s Chinese investors are probably more focused on Asian opportunities now because of uncertainty and the impact of the ongoing trade war with the US.