Lenders predict rise in PE-backed financings

Private equity firms and sovereign wealth funds are expected to play a greater role in company financing over the next year, at the expense of more traditional lenders like banks.

Private equity firms and sovereign wealth funds will wield greater influence globally in company financing over the next year.

Based on interviews with capital providers including financial institutions, private equity funds and hedge funds across Asia, Europe and the US, a recent survey found 84 percent of respondents believed private equity firms will be more active competitors in the global financing market in the next 12 months. Some 45 percent predict the same for sovereign wealth funds, but only 25 percent expected an increase in activity from more traditional finance houses, like banks.

The emergence of non-bank capital providers is due to both the revival of the initial public offering (IPO) market and the legacy issues global financial crises left with bank financial institutions, according to the study, which was published by global law firm Paul, Hastings, Janofsky & Walker in association with Mergermarket and Debtwire. In addition, the survey said, private equity firms have also emerged from the crisis in better shape since their operational structure and the way their business works differs to that of banks.

Asia, with its large number of fast-growing companies and rapid economic development, is expected to see the most “substantial” opportunities, according to the survey. In particular, it predicted the mid-market would be where non-traditional capital providers could come in, as banks are more focused on lending to larger and more established companies. 

Industry-wise, 60 percent of the respondents to the survey expect the energy sector to be most attractive to capital lenders globally over the next year, followed by telecommunications and consumer industries.

While real estate and financial services generally are not likely to be favoured by global lenders in the coming year, the Asian property and infrastructure sectors are likely to be exceptions, the survey showed.