The Asian Development Bank (ADB) and ADM Capital have completed fund raising for a US$138mn limited partnership fund that will promote the recovery of financially distressed but potentially viable companies in Asia. This is the first tranche in what is expected to be a total fundraising of US$500mn.
ADB is the anchor investor in the ADM Maculus Fund, which will be managed by ADM Capital, a Hong Kong, China-based investment manager. ADB has made a US$20mn commitment to the fund. Several major US and European institutions are among the other investors.
The ADM Maculus Fund will buy out existing creditors on a single asset or pooled basis to initiate financial or corporate restructuring of companies that are at risk of bankruptcy due to excessive and unsustainable debt levels or financial mismanagement.
The fund will focus on Southeast Asia markets, which are believed to harbour the equivalent of US$600bn in nonperforming loans.
“Companies will have the chance to regain their operational viability, sustain their economic contribution to their markets, and lessen the adverse impacts for stakeholders such as employees,” says Robert Bestani, director general of ADB’s Private Sector Operations Department.
Because of the Asian financial crisis, between one and two thirds of all loans extended in Asia outside of Japan, estimated at more than US$800bn, are considered delinquent.
“Not addressing the NPL problem of the banking sectors will impair capital significantly,” adds Bestani. “As credit costs increase to cover the cost of NPL losses, financial institutions would resist making fresh loans.”
A minimum of 85% of the fund’s portfolio will go to PRC, India, Indonesia, Malaysia, Philippines, and Thailand, and no more than 15% will go to the newly industrialised economies of Asia.
“The fund’s core objective aligns with ADB’s strategy of promoting poverty reduction through job creation and preservation, infrastructure preservation and development, banking reform, and corporate governance,” says Bestani.