Study: PE to play bigger role in Asian restructuring

Turnaround situations in Asia, particularly in Korea and Japan, are anticipated to increase, with private equity firms expected to play a key role, according to an AlixPartners study.

Business restructurings will become more common in the Asia-Pacific region, with private equity firms likely to play an ever-increasing role, according to a report by AlixPartners surveying 150 lawyers, bankers, fund managers and investors across the region. 

“Private equity and hedge funds do not command a lot of the restructuring space [in Asia] today,” CV Ramachandran, managing director and head of Asia explained at a media briefing of the report. 

“Because it is another player companies can leverage for funds, but also for expertise in terms of fixing their business and being an active investor in the company, private equity is going to play an increasing role in Asia in terms of restructurings,” Ramachandran said.

About 60 percent of respondents expected the number of turnarounds and restructurings in Korea to significantly increase, while 25 percent expected the same in Japan.
 

Private equity and hedge funds do not command a lot of the restructuring space [in Asia] today. Because it is another player companies can leverage for funds, but also for expertise…private equity is going to play an increasing role in Asia

CV Ramachandran, managing director and head of Asia at AlixPartners.

Tsutomu Nodu, managing director at AlixPartners, said at the presentation in Hong Kong that as the currency in Japan has weakened and stock prices have gone up, companies are getting more opportunities to restructure their businesses. 

“Japanese companies have to find growth opportunities overseas therefore have to pursue massive restructuring [of their businesses],” Nodu said. Many Japanese companies in the past have expanded beyond their core-businesses and consumer demand leaving them burdened with inefficient, debt-laden structures. 

Companies are opening up to private equity partners when it comes to restructuring and don’t always favour banks, according Ivo Naumann, managing director at AlixPartners. He said that if banks finance a restructuring in Asia, the situation usually involves a syndicate of eight to 10 banks, which are harder to get aligned and move slower and less aggressively. 

He said private equity firms have a faster decision-making process, involves typically only one party and can be more aggressive in their financing structures. 

The report also showed that 76 percent of respondents expected financial services companies to require turnaround or restructurings over the next 12 months, with industrial products (70 percent) and the automotive industry (69 percent) following closely behind. 

Of the respondents, 39 percent outlined macroeconomic conditions as the primary driver of turnarounds over the next 12 months, while 27 percent cited debt or liquidity issues. 

AlixPartners is a global business advisory firm founded in 1981. The firm focuses on enterprise improvement, turnaround and restructuring, financing advisory services and information management services. Currently AlixPartners has three Asia offices in Shanghai, Tokyo, Seoul and Hong Kong, as well as a number of locations worldwide.