The liquidity bubble that fed speedy investments and speedy exits has burst. Investors in Asia need to develop a relationship with their investments if they want to see a return.
Speaking at IFLR’s Restructuring and Insolvency Forum last week, market participants highlighted the familial nature of Asian companies and the importance of working in partnership with them.
Melissa Obegi is managing partner and Asia regional counsel at Oaktree Capital: “These are often family business with loyal employees; parachute management is not going to work in Asia. It’s important to have a relationship with the management and align yourself with players that are critical to it, such as the local government.”
Rod Sutton of Ferrier Hodgson agreed in his keynote speech, adding: “On the private equity deals that I’ve seen, there has been zero intelligent management and strategic input into these businesses. But any concept of a quick buck is largely gone now.”
In the past, investor strategy was to get in and get out as soon as possible. This led to a flurry of initial public offerings, many of which now look premature. Some of these companies are in distress and others look likely to follow.
These companies are being targeted by distressed debt investors that want a say, and a stake, in how a company is restructured or wound-up. This might include management changes, overly prompt enforcement to recoup monies or a series of asset sales.
But such an approach seems outdated in Asia. Instead, Sutton urged investors to extend working capital to their distressed companies and ensure that they are close to crucial assets.
These could include the ownership of key intellectual property, the control of debt offshore, and the control of key management incentives – such as bonuses – offshore.
“Remember any business is about partnership,” said Sutton. “The more relevant you are to that partnership, the more likely it is that you will get paid. Stay close to the assets and stay relevant”
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