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Asia-Pacific Private Credit Newsletter
December 2020

In our inaugural newsletter we begin to address many of the facts, misconceptions and aspirations of the Asian-Pacific private credit asset class.  In this edition we discuss:

1. Thematic Focus – A four trillion-dollar funding gap

2. Market Insight – Covenants: The best a loan can get

3. News Centre – Links to several articles and white papers we found interesting


The last 20 years has seen the Asia-Pacific region become the driver of global economic growth, a trend that is expected to accelerate as the world emerges from the COVID-19 pandemic.  SMEs are at the heart of this expansion, as they account for 95% of all firms and power the core drivers of growth, employment and exports, across the region. 

Asian economic growth has been accompanied by a rise in credit from international lenders.  Since 1997, cross-border claims of BIS reporting banks more than quadrupled, to around USD2 trillion. Common lender channels have shifted over time. Post Asian crisis, Japanese banks were replaced by Europeans who, post-GFC, were supplanted by a range of APAC-domiciled lenders.  In each phase a regional segment has been ready to step in and seize the opportunity presented by Asian growth.

Post-COVID, however, Asian SMEs face a potentially shrinking market from providers of bank finance and a broken client experience from those who remain.


ABN Amro and Westpac have both publicly announced their retreat from Asian lending in the last few months, while ING have decided to refocus wholesale banking operations.  Common reasons are cited – improved capital efficiency, focus on large, core clients and a general reduction in business costs and complexity.  These banks will not be the last we expect.  We hear whispers of peers with similar intentions and anticipate that COVID will prove to be an accelerant of current trends.


Asian SMEs face significant challenges even if they manage to gain access to bank finance.  Onboarding is painful, borrowers are often directed to untailored services for cross-sell and they face heightened operational risk due to time lags between requesting and receiving funding.  Going into 2021, implicit and explicit forbearance programs are ending.  We expect that incumbent banks will look to work through loans in distress and further push out smaller clients.  Closed and shrinking lending books will not be willing to refinance.


These trends compound an annual funding gap already estimated at USD4.1 trillion. The explosion in private credit markets which occurred in North America and Europe post-GFC helped spur significant economic growth thereafter as the banks retreated from middle market lending.  Levels of direct lending are now on a par with other forms of debt financing. By comparison, Asian private credit is still in its infancy and the majority of debt finance is primarily via bank lending.


This huge imbalance in the supply and demand of debt capital in the region supports high expected returns via exposure to corporate earnings which cannot be accessed through public markets. Compared to other regions, Asian direct lending accounts for a fraction of total corporate debt. In terms of assets under management, the region only amounts to seven percent of the global private credit asset class.

Furthermore, post-COVID, attractive return expectations align with the mitigation of socio-economic risk in the region. Today, institutional investors focus increasingly on the “triple bottom line” and how they can balance financial objectives with environmental, social and governance (“ESG”) concerns. The current funding gap in Asia materially increases the risks of business failures, structural unemployment and attendant long-term social problems. Investors who wish to “do well by doing good” should look no further than this developing asset class.

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Covenants: The best a loan can get

In 2019 around 85% of global leveraged loans were “cov(enant)-lite”. Direct lending, which takes structural and pricing cues from this market has also been heading in a similar direction in the US and Europe

The rapid pace of covenant erosion even amongst the pre-GFC and post-GFC cov-lite loans is stark. Cov-lite loans originated post-2010 versus pre-2010 show an average discounted recovery drop of 18 percentage points to 59% - as a comparison bank loan recoveries were 80% in both periods (S&P LossStats).

Asia-Pacific generally did not follow this cov-lite trend. The dominance of commercial banks has meant a resistance to cov-lite loan structures, even for private equity-backed borrowers

The direct lending market is still nascent and a lack of competition as well as a plethora of opportunities led to more robust loan structures

Typical covenant packages include leverage, DSCR, capex and other maintenance covenants for reporting and monitoring the credit worthiness of the borrower

Other covenants prevent transfer of assets and use of cash flow to pay dividends or invest outside of agreed purposes

In addition, enhanced security packages including personal guarantees from majority shareholders, personal assets for additional security and control over bank accounts and lender co-signing authorities

US and European lenders may hark back nostalgically to the days when these were common in their market, but here in Asia-Pacific the lenders still drive the bus


AIMA Alternative Credit Council’s white paper Private Credit in Asia

International banks are retrenching from Asia

Is this just the beginning of a new wave?  What impact will it have for credit availability for corporates in the region?

  • ABN Amro, ING and Westpac 

Trends in private credit investing in Canada

Preqin’s The Future of Alternatives 2025

How cov-lite survived COVID-19

After epic credit cycle, recoveries on defaulted debt point lower

If you have an article on Private Credit that you think is interesting, please send it to us at


Zerobridge Partners Asset Management Limited is focused on giving institutional & high net worth investors globally access to APAC alternative credit opportunities. The strategy seeks to take advantage of the less developed banking and capital markets in the APAC region and capitalize on our strong proprietary deal flow.

Zerobridge Partners Advisory Limited is a debt advisory firm focusing on raising new capital, creditor negotiations and debt restructuring for companies in Asia-Pacific. We come with deep investment banking experience and a strong track record across multiple credit cycles in Asia.


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