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Interest cools in Asia distressed funds

As Apollo and ICICI gear up to close their India vehicle, interest in Asian distressed assets appears to have dwindled.

In 2013, commitments to private equity funds targeting Asia’s distressed assets declined 39 percent year on year, with funds raising $393 million for the sector, compared to $647 million raised in 2012, according to data from Private Equity International’s Research & Analytics division.

The drop is a continued decline since 2010 and 2011, when distressed funds raised $979 million and $964 million respectively.

As the credit environment tightens in China, and companies in India’s number of non-performing loans continues to rise, private equity investors have jumped at the opportunity to provide alternative means of financing in Asia.

However, the number of actual commitments to these funds has cooled off, with $2.7 billion worth of Asian distressed funds still in market.

Those remaining include AION, the joint venture launched by Apollo Global Management and ICICI Venture targeting Indian special situations, launched in 2012.

AION has a target of $750 million and had reportedly raised $675 million towards that figure as of this week, local media reported.

ICICI and Apollo did not respond to requests for comment by press time, but a source close to the matter confirmed to PEI that the fund would make a final close by the end of March.

Other vehicles in market include Allegro Turnaround and Special Situations Fund, targeting $200 million for Australia, and Tata Capital Special Situations Fund, raising about $80 million for India, PEI's data showed.

However, while LP sentiment appears to have dropped off, some players continue to raise successfully.

SSG Capital, an Indian fund tackling special situations, turnaround and mezzanine opportunities, launched its third fund since 2010 in February, targeting $800 million – twice the size of its predecessor, which closed oversubscribed in November 2012.

Returns from SSG’s portfolio showed a progressive improvement over recent years. In 2011, the IRR for SSG's distressed portfolio was 20-23 percent, up from 12-14 percent in 2010. The 2012 figure was expected to be at or higher than the 2011 numbers, partner at SSG Shyam Maheshwari, told PEI earlier.

Nevertheless, fundraising across Asia Pacific has slowed – not just in the distressed sector.

First-time fund managers in Asia raised only $1.8 billion last year, down by about 50 percent year on year and the lowest amount since 2009, according to PEI's data. The numbers represent a multi-year slide since 2009, when 20 debut funds raised only $987 million.