November 27, 2018 / 5:47 PM / 16 days ago

ADM Capital’s new US$178m fund targets Asian direct lending

LONDON, Nov 27 (LPC) - Asian direct lending is taking another step forward with the final close of ADM Capital’s new US$178m Asia Secured Lending II fund (ASLF II), which will invest in emerging Asian countries and specialises in off-market private loans originated through its regional network in 15 countries.

The fund is designed to support growing businesses and lend where bank financing remains scarce by making three- to five-year bilateral direct loans to small and medium-size enterprises (SMEs) that meet environmental, social and governance principles.

Private debt markets are booming in Europe and the US, as banks’ retrenchment and regulation after the financial crisis created a huge global opportunity, but development has been slower in Asia due to the region’s diverse geography and legal jurisdictions.

Firms like ADM are filling the gap by lending to performing companies that have been unable to access financing from traditional channels as Asia’s economic growth continues apace. Deals can be arranged quickly, and often allow entrepreneurs to hold and develop businesses for longer before selling to private equity firms.

“There is a strong growth dynamic in Asia, it’s not just east to west, it’s north to south with intra-regional trade, investment and travel. Despite global macroeconomic challenges, Asia feels like it’s got wheels on,” said Christopher Smith, head of investor relations and marketing at ADM Capital.

Investors participate via a syndicated loan platform with a revolving senior tranche and a junior tranche which allows capital to be recycled during a six-year availability period. The loans generate returns in the high teens and are secured with a full covenant package, which is becoming increasingly rare as the US and Europe continue to move towards covenant-lite loans with little lender protection.

“There is a race to the bottom in deteriorating covenants in the rest of the world. We’re not seeing this in Asia, we’ve been able to build portfolios, and will continue to do so, with strong covenant packages and good downside protection. We’re not losing transactions based on our covenant requirements,” Smith said.

SEED CAPITAL

The ASLF II fund, which is also known as the Somei Lending Platform, had commitments of US$50m from the US government’s development finance institution OPIC and US$10m from Calvert Impact Capital. The IFC and another investor initially provided seed capital in 2016.

ASLF II, which has an investment-grade credit rating of BBB+ by Egan Jones, has already made seven investments after first close in September 2017, focusing on China, Indonesia and Thailand in sectors ranging from healthcare and education to real estate, media, consumer and diversified consumer, retail, and internet and software firms.

The fund is the second for the Hong Kong and London-based private credit investment manager ADM, which already has US$1.6bn of private market assets under management. ASLF I was launched in 2012 in partnership with the IFC to support small businesses, drive economic growth and create new employment opportunities in the region’s emerging economies.

ADM Capital was founded in 1998 and initially focused on distressed debt, but subsequently pivoted to private credit and direct lending and has originated more than US$850m or secured private credit loans in 2018 so far.

“Credit is our DNA,” Smith said.

The firm also closed the US$450m Cibus Fund in October, a private equity and co-investment vehicle created to invest in sustainable, rapidly-growing food chain companies in Europe and New Zealand. (Reporting by Tessa Walsh Editing by Alasdair Reilly)

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