Asia-Pacific COVID-19 Intelligence Highlights - 08 April 2020 - Asia-Pacific COVID-19 Intelligence Highlights
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
08 April 2020 Asia-Pacific COVID-19 Intelligence Highlights acuris.com
Acuris Asia-Pacific COVID-19 Intelligence Highlights
Introduction Mergermarket 03
Inframation 08
Asia has been on the frontline of the coronavirus crisis for over three months. As companies, advisors and investors across the
AVCJ 13
region react to this unprecedented situation, Acuris’s market-leading products provide news, data and analysis to help you make
better business decisions. Mergermarket and AVCJ help corporates, private equity houses and bankers identify M&A Debtwire 16
opportunities while Debtwire provides unrivalled insight into credit situations as they unfold. Investors, legal advisors and
PaRR 26
companies rely on Dealreporter and PaRR to track equity markets and make sense of the fast-moving regulatory landscape while
Inframation provides financing and trading intelligence and data for the global infrastructure and energy sectors. Dealreporter 32
This report contains a selection of our coverage on how the COVID-19 crisis is impacting different markets in the region produced
by our in-country teams of editors and analysts across Asia. We hope you find it useful.
Please feel free to contact us to learn more about how we can help you stay better informed during these difficult times – and
beyond.
acuris.comMergermarket Asia-Pacific COVID-19 Intelligence Highlights 3 Mergermarket is an unparalleled M&A news and intelligence tool specifically targeted to generate opportunities for corporate advisory outfits and private equity firms. Mergermarket Intelligence Introduction The COVID-19 pandemic has disrupted global M&A and IPOs on a massive scale this year. It has caused a sharp slowdown in APAC deals, with the region seeing a 32.7% YoY decrease in deal value - the lowest quarterly value since 1Q13. Mergermarket has continued to provide the most relevant insights and opportunities to help subscribers navigate through this uncertainty. From exclusive interviews on how companies are changing strategies to timely updates and scoops on sale processes, Mergermarket readers hear it first. We strive to identify future M&A opportunities for dealmakers as struggling companies seek out restructuring or financing measures to weather the storm. Mergermarket also helps corporates and private equity firms identify distressed M&A targets. Below is a selection of articles analysing COVID-19's immediate impact on APAC M&A deal flow and identifying the key issues to track in the months to come. mergermarket.com
Mergermarket Asia-Pacific COVID-19 Intelligence Highlights 4
14 Feb 2020
China dealmakers brace for slowdown
amid COVID-19 outbreak
by Ling Yang and George Shen in Shanghai, Jennifer Zhang in Chongqing and Riccardo Ghia in Hong Kong; analytics by Neal Zhang
• Market comeback expected in 2H epidemic in 2003 might hint on M&A outlook taking a toll on China leisure sector including many to shut stores and suspend production
for the second half of this year. China travel, entertainment, catering, brick and mortar temporarily as the cash flow crunch has led to
• Domestic M&A likely to surge due to cash recorded USD 6.58bn M&A deal during 1H03, retail chains and offline education centers, as seeking financial bailout. Several companies
crunch
but the deal value soared to USD 20.6bn in well as transportation sector, he added. But may be forced to sell at a lower price to raise
• Deal settlement unlikely to be impacted 2H03 when the outbreak calmed, according to meanwhile, online gaming , online education, funds, as banking loans would become difficult,
Dealogic data. Acuris and Dealogic are both live-streaming and short video sharing according to an inbound M&A advisor.
owned by ION Group. platform, online fitness app, e-commerce apps,
The coronavirus repercussions on the
The SARS-like coronavirus outbreak will disrupt enterprise collaboration apps are gaining
Between November 2002 and July 2003, economy marks the latest in a series of
the natural flow of China M&A activity, but the ground, according to the Shanghai based
SARS caused 774 deaths reported in 17 setbacks to the economy over the past
impact remains limited to timeline slippage investor.
countries with the majority of cases in years, forcing the central bank to boost the
and investors expect a deal ramp-up in the
mainland China and Hong Kong. GGV Capital recently announced that it provision of liquidity in the markets. Beijing
second half of this year, according to several
funded Shenzhen-headquartered Mogulinker announced to pump CNY 1.2 trn into financial
dealmakers polled by this news service. Blessing in disguise
Technology Co Ltd, a software-as-a-service markets as it ramped up support for the virus
Deal origination and execution are affected in Some PE investors however see this contagion (SaaS) provider, in its Series B round which fight, as reported. However, it implies a steep
the first quarter due to nationwide quarantine as a blessing in disguise as the ongoing offers real-time running data that can connect deterioration in debt to equity and debt to
measures ordered by the Beijing to fight with economic shockwave is accelerating industry manufacturers, suppliers, equipment and users GDP ratios across the system, according to the
the epidemic which lead to 1382 fatalities consolidation and benefit those who have for optimal operations. Shanghai-based investor.
so far, they said. Technology is alleviating invested in the industry leading players. In
Industrial companies will likely speed up In the meantime, a potential wave of corporate
the problem but cannot fully cushion the addition, some cash-rich and star companies,
hunting for smart manufacturing bolt-on buys, sale might coincide with disposals made by
blow. China’s State Administration for Market used to shutting their doors to financial
as the situation fully unveils the importance of companies looking to re-focus on their major
Regulation (SAMR) now requires merger filings investors, are reconsidering financing strategy
digital solutions for traditional manufacturing businesses, to help alleviate financial stress.
to be carried out either online or by post due and will be receptive to investor approaches
companies, an investor manager from a state-
to the outbreak. to weather the abrupt crisis, according to a Chinese companies, both SOEs and private
owned enterprise said.
Shanghai-based private equity investor. companies, have enjoyed a huge passion for
Deal activities YTD have experienced a free fall
However, buyers are unlikely to drastically diversification strategies, snatching assets that
compared to the same period last year. From Valuation adjustment is also within expectation,
change their investment strategy in response they don’t really need, over the past few years,
the beginning of this year until 10 February, with the first quarter financial performance
to the ongoing epidemic as the issue remains especially during the outbound M&A craze
China including Hong Kong recorded 84 deals likely to hit bottom line, but significantly,
temporary, the investor said. before 2018.
with total deal value worth USD 8.411bn, down discount appears to be unlikely, the investor
54.1% and 76.6% respectively, compared to the said. Liquidity crunch
same period last year, according to data from Continued
The contagion changed consumption patterns The domestic M&A deals might surge because
Mergermarket. Read the full story online
and at the same time created a boost for of financing difficulties confronting China’s
However, the deal surge following SARS online application. The outbreak is especially small and mid-sized enterprises, forcing
Read more
mergermarket.comMergermarket Asia-Pacific COVID-19 Intelligence Highlights 5
16 Mar 2020
Japan Inc adopts ‘wait-and-see’ stance for M&A
amid COVID-19 recession fears
by Ryuya Shiga, Nozomi Toyama, Mai Mizuta, and Takuma Sasaki
• Nikkei 225 has plunged 25% since start of There had been a healthy pipeline of deals the number of deals in Japan to decline have dry powder to invest, he said. In fact, it
this year since the start of 2020, but many of these temporarily as many Japanese companies should be a great time to acquire companies
have now been suspended as decisions at the need to allocate funds, which had been at reasonable valuations and there should be
• Acquisition opportunities for strategics and management and board levels have been put set aside for M&A, to respond to the crisis. numerous turnaround targets coming up in the
private equity remain on hold, the second banker said. However, government stimulus packages market, he added.
• Current inflated valuation to see The third banker noted there would be fewer
offered to companies in the event of a
A private equity source echoed this view
readjustment recession should enable them to return to the
RFPs in the coming months. “The key question and said that during such a phase, there is a
M&A market relatively soon, he noted.
is how long this will last and what the real certain period where the expectation between
impact is,” he added. Mark Weeks, partner at Orrick, pointed out sellers and buyers do not match immediately -
Japan Inc is largely adopting a “wait-and-see”
that lower stock prices and appreciation sellers tend to keep higher expectation based
stance with regards to M&A deals against Companies such as Tokyo-based
of the Japanese yen could present buying on the previous price range, while buyers
the backdrop of a potential global recession telecommunication company KDDI [TYO:9433]
opportunities for far-sighted Japanese buyers. are seeing the bottom, he continued. This
sparked by the COVID-19 outbreak, according noted it had no plans to cancel or
Recent inflated valuations are being adjusted sort of mismatch will be resolved soon after
to dealmakers polled by this news service. postpone any investments due to the novel
downward due to the coronavirus outbreak. companies enter into bankruptcy, and owners
coronavirus as of now. Tokyo-based IT service
Some advisors also noted that a few of their Japanese companies keen on acquiring will get to know what the real range is, he
provider Fujitsu [TYO:6702] said it could
deals had been terminated and/or stalled due cutting-edge technologies, including artificial noted.
not immediately comment about COVID-19’s
to increasing uncertainty. “For both sellers intelligence and big data, may now see such
potential impact on M&A. Prior to the outbreak, Japanese private equity
and buyers, it is not the right timing to push targets within their grasp, he continued.
activity had been on the rise, helped by banks
deals forward as conditions have changed Meanwhile, Unizo Holdings [TYO:3258]
Lower share prices could bring an uptick in aggressively extending financial leverage to
subsequent to the outbreak,” the first banker announced last week that it was planning to
unsolicited takeover offers from strategics with about 10x EBITDA due to the negative interest
and an advisor said. sell properties valued at about JPY 130bn
strong balance sheets, Weeks said. Targets with rate policy adopted by the Bank of Japan, the
(USD 1.2bn) in April 2020 or thereafter. It noted
Eiichi Yamazaki, head of global advisory weak balance sheets or a negative outlook due fourth banker said. However, in light of the
that due to declining asset values because
at Mizuho Securities, said the importance to a recession or downturn in their industries, ongoing situation, financial leverage could
of increased uncertainty about the future on
of M&A as a business strategy would remain such as travel and leisure, may be especially contract to below 5x or even 3x EBITDA and
account of COVID-19 and other factors, it
unchanged. However, it could be less of a vulnerable, he noted. Private equity and activist this would affect private equity activity in terms
was scaling up asset sales. Separately, news
priority now as companies respond to more funds also intensify their investment efforts of investments and exits, the fourth banker
reports have also pointed out that Unizo may
urgent issues. The current situation prevents under such circumstances, he added. added.
be accelerating asset sales aimed at securing
dealmakers from conducting site visits and
funds to conduct an employee buyout and Private equity buyouts – opportune timing?
meetings, and cross-border deals in particular
reducing the company’s enterprise value to Continued
are being impacted. Processes such as Meanwhile, the first banker noted that private
fend off takeover attempts from other bidders. Read the full story online
auctions and researching targets are being equity firms are gearing up for potential buying
affected, he added. Dai-ichi Life Research Institute’s Executive opportunities. For private equity, a recession
Chief Economist Toshihiro Nagahama expects is not an immediate issue as funds already Read more
mergermarket.comMergermarket Asia-Pacific COVID-19 Intelligence Highlights 6
16 Mar 2020
Coronavirus to add impetus to ‘cross-sector’ M&A
as corporates target tech to support core business
by Louise Weihart in Sydney
• Driven by need to keep up with digitization No company can escape the move to but care is needed in planning to ensure the startup Digital Asset to date, while insurance
technology and M&A will primarily be driven underlying strategic logic of the transaction broker network AUB Group [ASX:AUB]
• Coronavirus to put spotlight on certain by the need to keep up with digital innovation, is preserved and maximum value is unlocked, invested AUD 132m for a 40% stake in Sydney-
sectors
cut costs, and boost revenue and efficiency, Pottinger’s Sheehy added. based online, low-cost and commercial
• Solutions that solve niche problems will be agreed Rajeev Gupta, partner at Sydney-
Ubiquitous across sectors
insurance distribution platform Bizcover this
targeted based investment firm Alium Capital. This February.
trend has been big in the US in the past four The trend towards technology investment
Also in education and services, Sydney-based
to five years and Australia is now catching up, will be ubiquitous across all sectors, experts
Australian corporates are expected to wealth education and services provider DG
he said. agreed, with EY’s Larocca highlighting sectors
increasingly make “cross-sector” M&A Institute told this news service in January
that are facing disruption like healthcare and
moves across the board as they invest in or The coronavirus pandemic is a development it is seeking buys and is particularly keen
financial services. Healthcare, in particular,
acquire technology companies to support that will add impetus to technology investment, on technology-based services companies
could see heightened activity in the wake of
their core business activities in 2020, with particularly in the fields of remote working, that can fast track its in-house technology
the coronavirus pandemic, sources agreed.
the coronavirus pandemic providing added employee engagement, business continuity, development.
impetus, according to advisory and industry and digital client services, said John Sheehy, Tele-health, for one, which has suffered from
There has also been aggressive activity in
sources polled by this news service. CEO of Sydney and New York-based corporate inertia and lack of government support to date,
the consumer sector with companies making
advisory firm Pottinger. None of this is new, could well get the boost it needs in the current
Technology will be one of the top sectors acquisitions to support their online businesses,
but the pandemic is going to shine a light on environment, Gupta said. Education certainly
for investment and acquisition in the next 12 noted Alium Capital’s Gupta, citing as an
the value of good technology in these areas has merits to being delivered online and with
months as pressure to embrace digitization to example Wesfarmers’ June 2019 purchase of
and will also serve as a reminder of the value the current coronavirus pandemic, online
drive growth compels executives to acquire online retailer Catch Group for AUD 230m
of human-to-human connection as we enter learning may well flourish, he added.
outside of their sectors, said EY Oceania to accelerate its ecommerce and digital
a more isolated online world in the coming
Transaction Advisory Services Leader David A report from Bombora Investment capability.
months, he noted.
Larocca. Management on Friday (13 March
Technology businesses that are asset-light 2020) highlighted Pacific Knowledge
According to EY’s latest bi-yearly Global
may benefit once the virus situation stabilizes, Systems [ASX:PKS], whose healthcare Continued
Capital Confidence Barometer, featuring
Alium Capital’s Gupta added. The key is software is used in pathology Read the full story online
interviews with some 1700 global executives
to maintain low costs and cash burn in an labs, and education technology
and including 170 in Australia, 66% of Australia
environment when the economy is generally company Janison [ASX:JAN] as among those Read more
and New Zealand interviewees expect cross-
weaker, he said. that could benefit from current conditions.
sector M&A to be driven by technology and
digitization, compared to 75% globally, with Technology M&A can allow corporates to In the financial services space, the Australian
key drivers being the race to secure new leapfrog long internal technology development Securities Exchange [ASX], for one,
technology and talent (both at 23%). programs and plug critical gaps in IP arsenal, has invested USD 30.9m in blockchain
mergermarket.comMergermarket Asia-Pacific COVID-19 Intelligence Highlights 7
17 Mar 2020
Southeast Asia deals on uncertain footing due to COVID-19 fallout
but bright spots in health, e-commerce/tech, supply chains emerge
by Likha Cuevas Miel, Lizzie Ko, Krista Montealegre, Warangkana Tempati, Tony Goh, I Made Sentana, and Anh Duy Giap
Dealmaking in Southeast Asia, the first region Certain sectors including data centers, digital been a rise in inquiries in the last two months Philippines
to see the most COVID-19 infections after healthcare, online education, e-commerce, from companies looking to make direct
The country’s National Capital Region, which
the Lunar New Year, has become murkier and other technology providers that provide investments/to acquire companies related
contributes about 40% of national GDP, is
with fundraising and deal timetables up in delivery of these services are also faring well, to supply chains in Thailand. Companies
on a lockdown that started midnight of 15
the air amid volatility in the financial markets, the advisors noted. that have been inquiring about investment
March. Several provinces outside Metro
according to industry advisors. However, bright opportunities belong to these sectors:
Singapore-based online retail cashback Manila implemented their own lockdowns
spots in several regions are emerging from the medical equipment, sportswear, furniture, food
firm Shopback just raised USD 30m in a to contain the spread of the virus, further
commotion and dealmakers are taking note of additives manufacturing, food processing, and
funding round led by Temasek, with Rakuten curtailing commerce. The pandemic could cut
these. pharmaceutical.
[TYO:4755], EV Growth, Cornerstone the country’s growth to 5.7%, much slower
Singapore Ventures, EDBI and 33 Capital joining the Meanwhile, hotel and tourism-related than the government target of 6.5% to 7.5%,
round. businesses are bearing the brunt of the according to New York-based think tank,
In Singapore, the hardest-hit businesses by
COVID-19 fallout but this will give rise to buying Global Source.
the pandemic are retail, food and beverage Meanwhile, traditional industries such as
opportunities as there are more inquiries for
(F&B), and hotels as it was among the first manufacturing and construction need to All businesses nationwide are disrupted and
boutique hotels that may be up for sale, Ahuja
after China to hit the red button in terms of reduce their reliance on labor and adopt a tourism and allied services such as aviation,
said. E-commerce retailers and logistics firms
limiting human movement to stem the spread smart/automation approach to better manage hotels, malls, restaurants, entertainment,
that provide home deliveries are doing well
of the virus. the risks of a similar labor shortfall in the future ports, and logistics are now taking a beating
during this pandemic as people tend to avoid
due to quarantine and immigration control, from this pandemic, First Metro Investment
This news service reported, before Lunar commuting as much as they can, he added.
the advisors said. There are opportunities for Vice President Cristina Ulang said. Margin
New Year, that Eu Yan Sang, a Singapore-
investors to provide funding for the upgrade The National Economic and Social compression may also temporarily dent cash
headquartered manufacturer and retailer of
of these businesses, they noted, adding Development Council (NESDC), the Thai flow predictability and weaken debt service
traditional Chinese medicine, may be seeking a
that upgrades may be necessary to support government’s economic planning agency, last coverage ratios, she added.
sale. However, the process may be put on hold
business supply chain diversification, so month projected Thailand’s 2020 GDP growth
as the region reels from the economic effects RCBC Capital President, Jose Luis Gomez, said
firms do not rely on a few geographies for would slow to between 1.5% and 2.5%, from
of the pandemic, as reported by Reuters last the general slowdown in economic activity
procurement of key resources. 2.4% last year. Kasikornbank, Thailand’s largest
month. could reduce the need for more borrowing
commercial bank, even projected growth would
Thailand despite rates being generally more favorable to
That said, deals in healthcare, education, and be at a paltry 0.5% given that the COVID-19
borrowers.
services are still ongoing or are still scheduled This global supply chain disruption is a bright outbreak has affected major contributors to
to be launched in 2Q20, according to advisors. spot for Thailand as international companies the economy. Prasert Tantayawit, managing
The launches, however, will be slower than have been searching for other locations director at Maybank Kim Eng Securities Continued
usual due to travel limitations and remote work outside China as alternative manufacturing (Thailand)’s Investment Banking Department, Read the full story online
arrangements, they said. hubs, or for diversification of their supply said it was likely all or almost all IPOs would be
chains. According to Country Group Securities delayed. Read more
Managing Director Ashwani Ahuja, there has
mergermarket.comInframation Asia-Pacific COVID-19 Intelligence Highlights 8 Inframation is the world’s leading intelligence provider for infrastructure finance professionals, supplying real-time information on the projects, politics and people shaping the infrastructure finance sector. Inframation Intelligence Introduction Just when Asia seemed to be limping back to a limited degree of normalcy, COVID-19’s renewed spread around the world has sunk hopes of a quick resurgence of market activity. With face-to-face meetings - probably more crucial in Asia than elsewhere - now taboo, investors and other market participants are beginning to realise an important truth: that the wait-till-it’s-over approach may have run its course. It is time now to devise strategy taking into account the pandemic, rather than waiting for it to end. Central banks in Asia, from China and India to New Zealand and Singapore, have announced extensive easing to offset the impact. The markets have responded in short, optimistic bursts before creaking under the reams of bad news from around the world. Many deals - including by China Three Gorges and a host of airport transactions, especially in Southeast Asia - have been put on ice, with no word yet on when or if they will resume. From a macro perspective, S&P suggests that Asia-Pacific economic growth will more than halve this calendar year to sub-3%, and that China’s will come in at 2.9%. While the negativity has come thick and fast, some investors will now be preparing to look beyond and prepare for the uptick. Below is a selection of insightful content from Inframation, including what has happened and what is likely to come. inframationgroup.com
Inframation Asia-Pacific COVID-19 Intelligence Highlights 9
18 Feb 2020
Coronavirus Stalls China
Three Gorges Stake Sale
by Rob Clowe and Celine Ge
Further information
From our sister publication SparkSpread China Three Gorges continues to pursue
Get in touch or read more
opportunities outside of its home country. It
competed unsuccessfully to buy the 396 MW
China Three Gorges’ sale of a minority stake in Merkur offshore wind farm in Germany, which Laurence Edwards
its global portfolio has been put on hold as the was sold last year to APG and The Renewable
country grapples with the coronavirus outbreak, Infrastructure Group. It is also bidding for global
Cross navigation content
according to sources familiar with the matter. solar developer Fotowatio Renewable Ventures.
requires an internet connection.
The state-owned company is based in Hubei Last year, the company tried and failed to
province, the epicentre of the epidemic that increase its stake in EDP to above 50%, but
has accounted for more than 1,800 fatalities it continues to work with the Portuguese
so far. Three Gorges started looking for an company in Europe and Brazil.
investor last year in an effort to recycle capital
It is also working with SinoHydro and Spain’s
and diversify its ownership. CITIC Securities
ACS Group on the slow-moving USD 14bn,
is financial advisor for the sale. State Grid
4,800 MW Inga III hydropower project in the
Corporation of China is engaged in a similar
Congo.
sale process.
Officials at China Three Gorges did not
In addition to its power assets, the company
respond to requests for comment.
has interests in infrastructure assets including
Beijing Enterprises Water and Changjiang
Ecological Environment Group that boast a raft
of water PPP projects along the Yangtze River.
The company was formed to own and manage
China’s largest dam on the Yangtze. It controls
more than two dozen subsidiaries, which in turn
hold South Asian, Latin American and European
assets. Some of the company’s interests - such
as its 23% stake in Energias de Portugal (EDP)
- are minority positions.
The company’s corporate structure will likely
need to be tidied up before any transaction
is concluded, sources previously told
SparkSpread.
inframationgroup.comInframation Asia-Pacific COVID-19 Intelligence Highlights 10
11 Mar 2020
Brookfield suspends
Dalrymple coal terminal sale
by Shaun Drummond
Further information
Brookfield has suspended the sale of its AUD Brookfield has owned Dalrymple Bay
Get in touch or read more
2.4bn (USD 1.5bn) Dalrymple Bay Coal Terminal since 2010. It is jointly held by Brookfield
due to travel bans and market ructions caused Infrastructure Fund 1 (BIF 1), the publicly listed
by Covid-19, a source close said. Brookfield Infrastructure Partners and other Laurence Edwards
co-investors, according to Inframation Deals.
Travel restrictions due to the Covid-19
pandemic have made it difficult to hold Brookfield holds a 50-year lease with a 49- Cross navigation content
meetings and site tours with potential buyers, year option to operate, maintain and develop requires an internet connection.
the source said. the terminal.
Brookfield is running a dual-track trade sale
and IPO process to sell the coal terminal,
located near Mackay in Queensland, 1,000km
north of Brisbane.
Equity market volatility, caused by escalating
fears over the spread of the virus, has
scuppered any immediate plans for the IPO,
the source added.
Late last month, BAML and HSBC fielded
indicative bids for the trade sale, while Citi and
Credit Suisse, who are advising on the IPO,
kicked off the roadshow at the beginning of
March in Melbourne and Sydney.
Additional meetings were planned with Asian,
European and US investors.
Brookfield has set no timeframe to resume the
sale. The infrastructure manager will monitor
the impact of the virus over the next few
months before making its decision.
A Brookfield spokesperson declined to
comment for this report.
inframationgroup.comInframation Asia-Pacific COVID-19 Intelligence Highlights 11
27 Mar 2020
In-Depth: Covid-19 Will Trigger
A New Infra Boom In China
by Celine Ge and Chenyu Liang
China’s economy still has a long road ahead “What’s special this year is the active The ‘infrastructure investment boom in and hyper-scale data centres including those
to full recovery following an unprecedented involvement of the private sector, because the making’ involves dozens of provincial powered by renewable resources, according to
two-month lockdown and a 10-week halt of many parts of new infrastructure can be governments and a raft of infrastructure Ping An.
almost all business and social activities for the well commercialised,” Su Yue, an economist project plans that could total investment
While large cities such as Beijing, Shanghai,
1.4 billion population nation. with the Economist Intelligence Unit told of more than CNY 25trn (USD 3.6trn) over
Guangzhou and Shenzhen might have limited
Inframation. the coming years. Projects singled out by
Last week the country’s National Bureau of room for data centre market growth due to
the authorities include 5G infrastructure
Statistics recorded the slowest growth in His remarks were echoed by Morgan Stanley strengthening regulations, more projects could
(particularly telecom towers), ultra-high-
industrial output in almost three decades. Chief China Economist Robin Xinjin, who emerge in their neighbouring cities, as well as
voltage transmission lines, smart city projects,
Goldman Sachs had already predicted China’s predicted in a press briefing last week that northwest and southwest China, where there
high-speed inter-city railways and data
first-quarter GDP growth would experience a more than half of the “new infrastructure” are lower electricity tariffs and sufficient land
centres. Social infrastructure, particularly
9% contraction, from a previous forecast of investment being promoted by the central supply, the note said.
healthcare, was highlighted as another focused
2.5% growth. government could come from the private
sector for new projects. China’s data centre market is set to reach
sector.
To revive an economy that has been stricken 3.267 million racks in total capacity by the
“We see a phenomenal increase in the central
by the COVID-19 pandemic, the Chinese Infrastructure owners, including data centres in end of this year, up from 2.03 million in 2018,
government’s emphasis on digital infrastructure
government has resorted to an old-fashioned major Chinese cities, could potentially benefit according to China Academy of ICT.
since the outbreak of Covid-19,” Ping An
approach of boosting infrastructure from targeted preferential policies such as tax
Securities analysts led by Yan Lei wrote in a “Data centres are categorised by the central
investment. But this time central government waivers and electricity cuts, he said.
note to investors. One of the main reasons government as a type of new strategic
has made it clear that the private sector will
China’s latest push for the development of behind the move, the note said, is that the infrastructure in China,” William Huang,
likely play a much greater role.
data centres, 5G telecom and other so-called “new infrastructure” will likely be backed chairman with the country’s largest private
It is against a backdrop of debt-ridden local “new infrastructure” assets was first officially mainly by private investors and therefore ease data centre developer by assets GDS says.
government investment vehicles faced with revealed by the transcript of a Communist financial pressures on the government.
His company was invited by the government to
tight fiscal budgets and an ambitious target to Party Politburo meeting chaired by President Xi
Data centres discuss potential relaxation of regulations for
roll out new big-ticket projects. Jinping earlier this month. The ‘new investment’
data centre development in first-tier Chinese
theme was later reiterated in multiple Demand for data centres exploded after tens
New infra, old thinking cities such as Beijing and Shanghai as part of
speeches and reports released by various of millions of Chinese residents were asked to
the plan to cultivate the industry.
According to sources spoken to for this article, government agencies including the country’s study and work at home as a result of the virus.
digital and social infrastructure assets recently economic planner National Development and
“In the longer term, this trend of digitalisation is
promoted by the government are naturally Reform Commission. The instructions, given Continued
irreversible,” Yan Lei wrote.
more suitable for private-sector investment by the Politburo – China’s highest decision- Read the full story online
and operations. making body – include a special focus on Driven by a favourable policy environment,
motivating private sector investors. there will be a rising number of large-scale Read more
inframationgroup.comInframation Asia-Pacific COVID-19 Intelligence Highlights 12
27 Mar 2020
News Analysis: India’s Road Builders Face
Crucial Quarter As Hopes Turn Sour
by Rouhan Sharma
India’s road developers, hit by a liquidity "Revenue will be affected due to the essential in the current context. About again,” said Nitin Patel, executive director at
crunch and looking forward to a pick-up in precautionary measures that are necessary 2,900km of roads had been awarded by NHAI Sadbhav, but added that the industry had
construction after an extended monsoon, are during this pandemic.” this fiscal year that began April 2019. better brace itself for a challenging period.
now facing a potentially crippling blow brought
Mumbai-based Welspun Enterprises earlier “Successful bidders for these awarded All the officials Inframation spoke to said
about by the coronavirus shock.
this week said it is halting work across all its projects are going to be delayed as an entire they are evaluating their legal options and
Apart from deals slowing and corporate offices and project sites till further notice. chain of events from financial closure to may invoke a force majeure clause in their
face-to-face meetings now taboo, the other The duration of this shutdown will depend notifying the start dates for construction will all contracts. Lawyers said there have already
concern is the inability of construction workers upon further direction from the government, get extended,” he said. Banks are expected to been instances where the coronavirus has had
to reach sites as India implements the world’s Welspun said in an exchange filing. slow disbursals due to a scarcity of manpower, an impact on deal negotiations and contract
biggest COVID-19 related population lockdown, impacting financial closures, working capital drafting.
Yesterday, infrastructure developer PNC
says KV Rao, Hyderabad-based general requirements and payments to suppliers.
Infratech said it is temporarily suspending “We recently worked on a transaction where
manager of finance at KNR Constructions.
construction activity and toll collection. Bank credit to industry declined to 2.4% the coronavirus was included as a disclosure
The January-March dry season - usually The company is in the process of notifying in November 2019 from 4% a year earlier, to the material adverse change,” said Mohit
critical as road developers race to catch up authorities about its decision and will invoke according to data from India’s central bank. Gogia, partner at S&R Associates. “That
with construction during the dry season - was force majeure, it said in an exchange filing. It While some industries recorded a higher credit transaction had a linkage to the travel industry,
more important this year as 2019’s monsoon added that it is yet to quantify the impact of growth, the infrastructure sector saw a decline, and the disclosure was accepted given the
rains lasted well into November. This is also the the shutdown. the central bank said. current situation.”
time when the National Highways Authority of
Construction impact About 25% of the projects awarded under Dibyanshu Sinha, a partner at law firm Khaitan
India speeds up the awards process to fulfil
the hybrid annuity model in 2018 are yet to & Co., said that companies have “have already
its annual target. India is now in the third day India’s main road building agency, the NHAI,
start construction, according to Mumbai- decided to invoke force majeure but it will have
of a 21-day countrywide lockdown to battle expects that construction in March will fall to
based brokerage Spark Capital. Over a third to be linked to how it affects the performance
COVID-19. less than half its target.
that were awarded in 2019 are still awaiting a of contractual obligations in terms of inability
The government has taken several other steps, “We were expecting about 500km of roads formal concession agreement. Much of this is to perform and will also depend on the terms
including ordering the closure of all toll booths to be constructed in March but less than owing to challenges in securing financing, the of each contract.”
and clarifying on 19 February that supply 200km will be constructed because of the brokerage said in a recent report in February.
chain disruptions due to the pandemic can be lockdown measures,” a senior official at NHAI
Only option
considered force majeure. told Inframation. Continued
Nashik-headquartered road builder Sadbhav Read the full story online
“We had been operating at about 35% Companies have either scaled down or
Engineering expects it will take up to a month
capacity but we have taken the decision to shut operations after several states sealed
for normalcy to return even after the lockdown. Read more
completely halt operations across all locations their borders, allowing only essential items to
and we have also informed the stock pass, the official said. The transportation of “The only option is to try and make up for lost
exchange about it,” Rao told Inframation. bitumen and cement, which are required for revenue when we are back on the ground
construction of roads,are not considered
inframationgroup.comAVCJ Asia-Pacific COVID-19 Intelligence Highlights 13 AVCJ is the leading source of information on private equity and venture capital activities in Asia. AVCJ Intelligence Introduction Over the past couple of months, COVID-19 has created untold disruption, coursing through Asia and into global markets. Private investors across the region are helping portfolio companies in operational and financial distress. We don’t know when the crisis will abate. Meanwhile, new deals are sparse, exits are stuck in a holding pattern, and fundraising is a challenge for all but the lucky few. Chaos inevitably throw ups opportunities, but investors need to get the timing right. AVCJ will continue to provide coverage of how Asia’s private equity and venture capital industry is responding to COVID-19. Comparisons to the SARS outbreak in 2003 and the global financial crisis in 2008 are drawn with a degree of caution, recognizing that the context and contributing factors are different. However, there is one irrefutable takeaway: those who act decisively are more likely to emerge unscathed. avcj.com
AVCJ Asia-Pacific COVID-19 Intelligence Highlights 14
11 Mar 2020
Coronavirus and fundraising:
Caught in a bind
by Tim Burroughs
The coronavirus outbreak has implications power of this highly virulent virus, a slowdown
Asia PE fundraising, excluding renminbi vehicles
for PE fundraising well beyond China. Many in fundraising seems a rather innocuous
Asia-based managers are either unable to byproduct, but the seizing up of private capital
go and see LPs or LPs are not permitted to flows reflects broader challenges facing
visit them stakeholders in all economies as they try to
10,000 50
keep the money moving.
“Every single AGM I had booked overseas
in March and April has been canceled in Industry events are useful bellwethers
the last week – full stop, canceled. But the of sentiment. Within Asia, they are often 8,000
bigger focus is looking through the underlying accompanied by annual general meetings 40
investees and figuring out what if any impact (AGMs), fundraising roadshows and general
No. of funds
US$ million
there might be under various scenarios, and catchups as local GPs take advantage of the 6,000
obviously there is a wide band of scenarios fact that institutional investors are in town.
depending on where you are and what kind And four weeks ago, China was uppermost 30
of business you have. We are in constant in people’s minds. Could a mainland-based 4,000
dialogue, trying to figure it out in real-time, just manager get an audience with an LP, even if
like everyone else. There is a lot of work going he hadn’t been home in a fortnight? Would
20
on behind the scenes. We prepare for worst- anyone be brave enough to attend due
2,000
case scenarios and hope for the best.” diligence meetings in China, even for hard-to-
access funds?
Will MacAulay, an investment manager in
HESTA’s private capital team, captured the As corporate protocols kicked in regarding 0
2019-01 2019-02 2019-03 2019-04 2019-05 2019-06 2019-07 2019-08 2019-09 2019-10 2019-11 2019-12 2020-012020-02
mood among LPs at the recent AVCJ Australia who you could meet and where you could
& New Zealand Forum. His remarks also meet them, the answer to these two questions
underscore how what was initially viewed as soon became self-evident. One placement
a China problem has escalated within the agent disputed the notion that China
US$ million No. of partial or final closes
space of a few weeks into a global crisis, fundraising had stopped, preferring to say it
heightening the sense of uncertainty and fears had slowed down, but added that what was
of contagion. already likely to be a challenging year would be
truly brutal.
As of March 9, there were more than 109,000
Continued
cases of coronavirus disease – COVID-19 – “We have LPs that refused to take any
Read the full story online
across 104 territories, with 3,809 lives lost, meetings in January and February,” the agent
according to the World Health Organization. told AVCJ at the time. “We heard from one LP
Set against the disruptive and destructive that they aren’t going to make any decision..." Read more
avcj.comAVCJ Asia-Pacific COVID-19 Intelligence Highlights 15
25 Mar 2020
Coronavirus & leverage:
Room to maneuver?
by Tim Burroughs
Economic disruption caused by the buyers – and their financiers – might be waiting “The market as a whole is taking a step sponsors for leveraged buyouts in Asia
coronavirus outbreak is likely to leave for the confusion to clear. back – it’s been fascinating because we’re in Pacific since 2015 come from the traditional
many private equity portfolio companies several live situations,” says Peter Graf, head bank market, according to Debtwire. Regular
Questions are also being asked of another
in breach of their leverage covenants. of leveraged finance in Credit Suisse’s Asia principal payments and multiple covenants
business, Navitas, which puts students into
Borrowers and lenders are looking for a fix Pacific financing group. “If you look back at come as standard.
academic programs as a stepping stone to
the global financial crisis, it played out over
Of the more than 400,000 foreign students university enrolment. BGH Capital acquired Given the scale of the economic shock,
6-9 months and then it took down the global
enrolled in higher education courses in Navitas for A$2.1 billion last year, supported covenant breaches are inevitable, it’s just
economy after 12-18 months. Today, the speed
Australia, China accounts for above one-third. by A$1.1 billion in debt. Is this structure robust a matter of when. Airlines, tourism, and
of the sell-off has been so much faster and we
It remains to be seen how quickly they return enough to bear a drop-off in revenue without hospitality have felt the initial pinch, but
need more time to assess the full impact.”
to class. sliding into default? The message from a the impact of cutting off out-of-home
source close to the deal is unequivocal: “There Double wave consumption and curtailing supply chain
International education is one of countless
is no – as in zero – chance Navitas breaches activity will be widespread. Lenders are likely
areas experiencing uncertainty and chaos as From a leveraged finance perspective, this
its only covenant for many, many years.” to give borrowers some leeway – based
a result of the coronavirus outbreak. Australia, impact will come in two waves: the first
on a recognition that the crisis is macro in
like many other nations, closed its borders to Two weeks ago, leveraged finance immediate as companies secure short-term
nature and pushing countless companies into
all apart from citizens and permanent residents professionals were still working on new deals liquidity; the second over the next three
bankruptcy would do more harm than good
last week. But the ban on international arrivals for PE firms enjoying a prolonged period of to nine months as the covenants attached
– but there will still be winners and losers,
who have traveled from or through mainland ample liquidity. Now, sponsors and lenders to term loans that underpin LBOs undergo
rebounds and restructurings.
China was introduced in February. Depending alike are scouring the operational metrics quarterly financial performance tests. The
on how long the lockdown continues, and financial structures of existing portfolio covenants in question are designed to
educational institutions could be deprived of a companies for signs of weakness. capture whether a business can make interest
Continued
key source of income. payments on its debt and whether it can
The speed of the decline has caught everyone Read the full story online
sustain operations under its current debt load
Having contributed A$21 billion ($12.5 billion) off guard. In the past fortnight, the Credit
and budgetary commitments.
to Australia’s GDP in 2018, and with nearly 25% Suisse leveraged loan index marked its Read more
of students from overseas, international higher three worst days on record in just a four-day Confidence in the Navitas structure likely
education is big business. Disruption to this window due to a large-scale sell-off across all stems from a high bar in terms of what the
lucrative dynamic is already affecting private industries and ratings. Yields in the high-yield company must do to breach its covenant or
equity investors interested in the space. markets increased by 676 basis points over wide scope in what it can do to make amends. Further information
Laureate Education has yet to announce the course of four weeks, a steeper sell-off in It is one of few unitranche structures in the Get in touch or read more
who will buy its Australian and New Zealand a shorter period than the euro zone and Brexit market that offer such flexibility. Covenant-lite
operation, despite PE and strategic bidders crises of 2011 and 2016. Even in the global deals that aren’t subject to these quarterly
Gaurav Nayak
aggressively chasing the asset. With debt financial crisis, it took 78 weeks for yields to maintenance tests are equally rare. Four-fifths
and equity markets suffering convulsions, the peak. of the more than $50 billion raised by financial
avcj.comDebtwire Asia-Pacific COVID-19 Intelligence Highlights 16 Debtwire keeps you updated on stressed/distressed and highly-levered credits, acquisition targets and financing, private financing, investments and exits, through a mix of deal stories, features, investigative reports, and credit analysis reports. Debtwire Intelligence Introduction With high yield bond yields jumping to 15%-30% levels, the Asian primary bond market has been at a standstill since the second week of March when the global markets started selling off in response to the coronavirus. As such, the amount of new high yield bonds issued in March nosedived 79.3% year-on-year to USD 2.35bn with no issues seen for the last two weeks of the month. A surge of buying from Chinese investors towards the end of March provided relief for a much-beleaguered market, though there have been no signs yet that highly levered credits will be able to source funding via offshore bond issuance anytime soon. As of 3 April, the JPMorgan Asia Credit Index for Corporate Non-investment index had fallen 11.15% since the start of the year, nearly wiping out the 12.72% gains made during calendar 2019. The average yield to maturity stood at 9.99% as of 3 April, with spread over treasuries at 948bps. While the impact of the coronavirus can certainly be seen in the way prices for high yield has traded down to stressed/distressed levels, there have been few restructuring mandates to emerge from the crisis. One reason for this is that governments around the region are putting banks under pressure to exercise forbearance with some temporarily amending insolvency laws as well. Another reason for the relatively low numbers in new restructuring mandates is that companies that were already seeking large negative cash flows have been able to draw down fully on the unused portions of their loan facilities and standby letters of credit. “The big wave of defaults will happen, but it’s not happening now,” said a restructuring lawyer. “A lot of these companies will run out of cash, so it’s just a matter of time.” That’s not to say lawyers and financial advisors aren’t busy: a growing number of companies are seeking covenant waivers as borrowers seek to draw credit lines there are in some cases getting resistance from their lenders which could lead to a flow of litigation work. The same goes for disputes where borrowers are seeking injunctive relief against banks seeking to enforce margin calls.
Debtwire Asia-Pacific COVID-19 Intelligence Highlights 17
06 Feb 2020
Chinese HY developers downplay
outbreak as manageable; bonds recover
by Terence Wong
Chinese high-yield bond-issuer developers centers to comply with government measures New Years and Chinese New Year. Despite Guangdong being the second most
are generally playing down the balance-sheet limiting face-to-face interactions, said the affected province by the outbreak, Logan,
Central China Real Estate yesterday became
effects of the novel coronavirus as manageable, buysiders. which had over 80% of its land bank in the
the first developer to print following the
touting their fund raising shortly before the wealthy southern province’s core Greater
HSBC, in a 31 January research report, announced outbreak, using a drive-by deal to
outbreak became public as sufficient to shore Bay Area as of end-2019, still expects “stable
named KWG Group, Yanlord Land Group avoid meeting investors face to face.
up their liquidity, said more than 10 buysiders. growth” in its sales this year, the two buysiders
and Longfor Group as having the highest
The Henan-based homebuilder, which priced its said, citing the update sent out by the
Nonetheless, reflecting the severity of the land-bank concentration areas covered by
new 364-day, 6.875% bonds to yield 7%, told company.
situation, updates circulated to credit investor government restrictions on sales offices. The
investors during the marking conference call
by at least 16 of the developers this week also bank also named Shenzhen Investment, Logan Of the 16 developers, 14 specified in their
yesterday morning that it expects its contracted
forecast a large hit to 1Q20 presales, said the and Country Garden have having the largest respective updates that they will adopt a very
sales to drop 10%-15% year-on-year because
buysiders. land-bank exposure to five most-affected conservative approach on cash management,
of the epidemic, said two of the buysiders.
provinces. said the buysiders. In line with that strategy,
Supported by the generally constructive tone
Other developers so far have not quantified in Greenland and Zhenro maintained that they
of the updates, high-yield USD bonds from To cope, developers including Greenland
their respective updates the expected impact will not participate in land auctions until the
the Chinese property sector have generally Holdings, Logan Property, China Aoyuan
from the outbreak on their contracted sales, epidemic eases, whereas Logan, Jingrui,
outperformed the overall high yield market Group, Jingrui Holdings, Fantasia Holdings
said the buysiders. Ronshine and Kaisa said they will be very
since Monday, paring last week’s material mark- Group, Modern Land (China), Ronshine
cautious in terms of land acquisitions. In the
downs, said a dealer. China and Kaisa said that they will move to HSBC, in a 31 January research report, set its
meantime, to help with liquidity, Greenland,
online sales platforms. base case scenario for 2020 PRC contracted
Double-B bonds from the sector were up Logan and Yango Group said they will focus on
sales growth to be 2%, down from 17% the
50bps-75bps so far this week, while higher- Some of the developers, including Jingrui, Kaisa cash collection for earlier contracts.
bank previous forecasted. The revised base
beta single-B paper gained 2-3 points while and Zhenro Properties Group said in their
case was based on the bank’s assumptions that Also tempering the effect of the outbreak on
the rest of the market was approximately 25bps respective updates that they concluded from
contracted sales decline in February would be most high yield bond issuing developers is
firmer, according to the dealer. Kaisa Group’s stress tests and sensitivity analysis that they will
50% YoY and that the YoY decline would then that Hubei is not an important market for them
USD 300m, 11.95% due-2023s and USD 500m, be able to maintain healthy cash balances even
progressively narrow by 10 percentage points and Q1—punctuated by Chinese New Year—is
10.5% due-2025s gained 2.875 points so far if they had no pre-sales for three months, said
before normalizing in July as the outbreak is usually a low sales season for the sector,
this week, while China Evergrande Group’s the buysiders.
contained. Moody’s noted in a report on Tuesday (4
USD 4.68bn, 8.75% due-2025s gained 2.5
China’s delay in disclosing the outbreak in February).
points, the dealer said. “There must be impact on the near-term sales,”
Wuhan until 20 January created a window for
Shanghai-headquartered CIFI Holdings noted “However, if disruption continues for the next
Shut down speculative-grade Chinese developers to sell
in its update, said the buysiders. “The impact three-to-six months, rated developers with
USD 16.7bn bonds via 33 transactions in the
The developers, in their updates the week, on the medium and long term will depend on weak liquidity and high refinancing needs,
three weeks from New Year, according to data
maintained that the main hit to their contracted how the epidemic plays out and adjustments in mostly rated at single-B category, would be
compiled by Debtwire. In 2019, they sold USD
sales was caused by their need to shut sales government policy.” more vulnerable,” the rating agency added.
11bn across 26 deals in the four weeks between
debtwire.comDebtwire Asia-Pacific COVID-19 Intelligence Highlights 18
25 Feb 2020
GCLNE hopes to get loan-maturity extensions using
China’s support measures to lessen virus impact
GCL New Energy (GCLNE) hopes to obtain 154m) on 22 January 2020. The sales will be in Subsidies average subsidy collection rates,” the rating
maturity extensions/rollover on an unspecified tranches, said the company source. agency noted.
Huaneng stated during its November 2019
amount of loans before the next batch of asset
An around CNY 4bn bridge loan provided by bond roadshow that it plans to incorporate a GCLNE’s USD 500m 7.1% due-January 2021s
sales to China Huaneng Group, making use
Huaneng could also help GCLNE meet part discount in the GCLNE solar-farm purchase were indicated at 65/68 today, according to a
of the government’s support measures for
of its near-term maturities, according to the price to account for uncertainties over second holder.
companies during the virus outbreak, said a
company source. collecting GCLNE’s receivables from the
company source and a market source.
government on renewables subsidies, as
Although the company has currently used up
China’s central and local governments are reported.
the entire bridge for debt repayments, under
encouraging banks to provide liquidity support
the loan terms, GCLNE could first pay down However, GCLNE management stated in
to small and medium-sized enterprises and
part of the loan with the proceeds of its CNY conversations with credit investors that they
privately owned companies, including by
1.08bn solar-farm sale to Huaneng and then hope to sell the solar farms at least at the
granting maturity extensions, interest-rate cuts
redraw an equal amount, said the company book value - which is reflected in the valuation
and new credit lines.
source. of its assets sold so far.
The Hong Kong-listed solar-farm developer
The one-year loan, provided by a trust unit GCLNE reported CNY 8.8bn receivables in
and operator expects the next batch of
of Huaneng, bears an annual interest rate of government subsidies at end-June 2019, of
solar-farm sales to SOE power generator
10%, said the company source and a GCLNE which only CNY 3.6bn was included in the
Huaneng to be reached after the government
bondholder. current government-subsidy catalogues,
implements its new policy on renewable-
according to its 1H19 results. In terms of
energy subsidies announced in early February, Only around CNY 500m of the bridge was
capacity, only 33% of GCLNE’s capacity
said the company source. used to repay a shareholder loan from
was included in the government subsidy
GCLNE’s 62.3%-owner GCL Poly Energy, said
The policy implementation -- now expected catalogues as at end-June 2019.
the holder. GCLNE had an outstanding USD
only in April-May because Beijing postponed
70m 8% loan due in November 2019 owed to Fitch noted in a 11 February release that the
its annual national meetings due to COVID-19
GCL Poly, according to an 18 February 2019 most significant part of the newly announced
-- will help the companies reach agreements
GCL Poly announcement. renewable-subsidy policies is “the expansion
on the farms’ valuation, which is the main drag
of subsidy coverage from projects constructed
on the deal, said the company source. GCLNE and GCL Poly Energy jointly
before March 2016 and included in the
announced on 18 November that the
Huaneng, during its November 2019 bond renewable subsidy catalogue to all operational
parent’s originally planned sale of a 51%
roadshow, stated it had nearly completed and qualified ones.”
stake in GCLNE to Huaneng was scrapped
acquiring 2GW of solar farms from GCLNE.
and that GCLNE and the SOE entered into “The new policy requires subsidies to be
However, GCLNE only announced a 294MW
a cooperation framework agreement for a distributed to all eligible projects on a pro-rata
capacity sale to Huaneng for CNY 1.08bn (USD
potential solar-farm transaction basis, which will benefit those with below-
debtwire.comYou can also read
