S’pore companies buying up bargain distressed assets

The China Post

Singaporean companies have been picking up distressed assets, such as property in the United States and Indonesia, in the aftermath of the global financial crisis.

However, prices for these fire-sale assets are rising, and bargains are now thin on the ground as the economy recovers.

One factor is a recent move by the U.S. central bank to pump hundreds of billions of dollars into the economy, in a program known as quantitative easing.

This has meant that funds and companies flush with liquidity are driving up the demand for distressed assets.

Blossom Hing, director of corporate insolvency and restructuring at Drew & Napier, noted that, “There were more distressed assets for sale last year and early this year, but there are fewer now as the economy recovers, and fewer companies have to sell.

“There’s now also more cash chasing these assets due to the quantitative easing. Thus, the valuations have risen.”

Recent examples of fire-sale transactions include the acquisition, announced last month, of a fabrication facility in Houston by locally listed oil and gas player Ezra Holdings at an undisclosed “distressed” price.

In October, it was reported that the family company of Wee Cho Yaw, the chairman of United Overseas Bank, was among a group of investors that paid a knockdown price of about US$150 million for a former landmark property in Beverly Hills, also in the U.S. The property went for less than a third of its sale price of around US$500 million in 2007.

Aaron Loh, partner of restructuring services at Ernst & Young, estimates that the number of those expressing interest in distressed assets has almost doubled in the past year.

“There has been a marked increase in the number of buyers looking for opportunities, but pricing of the distressed assets remains a concern. The number of concluded deals recently is limited. Those who are considering distressed assets overseas are approaching them with caution,” he said.

Julian Kwek, a corporate lawyer who also heads the Indonesia desk at Drew & Napier, said that in general, valuations have jumped since the crisis by “50 percent to 60 percent easily.” Specific pricings would depend on many factors, such as the industry and country where the asset is located, and whether the seller is close to finding a way out of its troubles, he added.

“Valuations have been going up because of hot money in the Asia-Pacific. The cash could be from many countries, including the U.S. and those in Europe, while rich Asians are seeking the assets as well.”

A distressed asset is held by a company trapped in a bad financial situation, which is willing to let its assets go for very low prices. The asset could include a company’s debt, or physical assets such as property and equipment.

The assets can be from any geographical region or industry, though commodities and property holding companies are commonly targeted by investors, say observers.

Manoj Sandrasegara, joint head of Wong Partnership’s restructuring and insolvency practice, said the recent crisis saw shipping companies and electronics exporters running into trouble and needing to off load some assets.

Some assets, including property and equipment, can be acquired for 25 percent to 30 percent of their original price, and asset prices can be especially depressed when the country where the asset is located has a less efficient legal system, he said.

According to Kwek, distressed debt can go for anything between 5 percent and 95 percent of its face value, depending on the risks.

Observers note that while financial conditions affect the demand and supply of distressed assets, deals are available at any point in the economic cycle.

Maneesh Tripathi, chief executive of mobile handset company Spice i2i, said there are “still a lot” of distressed assets in his industry, though the number has fallen from that seen during the crisis.

“Internal issues are making people go down, such as poor management of company finances and supply chains,” he said.

Tripathi added that such assets are equally spread across Southeast Asia. There are fewer of them in Singapore, however, owing to better management practices here.

Sandrasegara said a number of distressed assets are on the market at any point of time, regardless of whether the economy is strong or weak.

“When the economy is good, assets could become distressed because of poor cash flow, bad management, or both,” he explained.


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