Insights – Key takeaways from panel discussions on the macro-outlook, private credit market and crisis in the PRC real estate sector from INSOL Tokyo 2023

We provide our key takeaways from various panel discussions conducted at INSOL Tokyo 2023 held at the Palace Hotel Tokyo from 11 to 13 September 2023.

Panel 1: Navigating the new global economic order in an era of rapid change

  • Resilient US labour market. Not seeing sharp downturn. Geo-political friction and deglobalisation will weigh on economic outlook

  • US slowdown anticipated later this year to early next year. Hard landing avoided

  • Asia continued growth and moderating inflation, but risks are rising with weakness in PRC real estate sector and financial stability concerns

  • Access to capital is a challenge, save for investment grade borrowers

Panel 2: Private credit – new lenders and new opportunities

  • Private credit market expanding rapidly post global financial crisis. Now stands at US$1.6 trillion market across direct lending (senior secured and mezzanine debt) and distressed and special situations financings

  • Benefits of private credit for borrowers: (i) flexible terms and (ii) increased certainty of completion

  • Benefits of private credit for lenders: (i) tightly structured deals with security and covenants and (ii) superior risk adjusted returns

  • Dual track processes more prevalent in the direct lending space

  • Converging approaches with the syndicated loan market as private credit funds club together (club deals)

  • Structuring: Focus on cash flows, asset values, LTV ratio and jurisdiction (emerging vs developing market and ease of enforcement)

Panel 3: Bubble trouble – a real estate quandary in China?

  • Fall in home prices more pronounced in tier 3 and tier 2 cities than tier 1 cities

  • Issuer defaults led to significant value destruction in USD bond market. Greater than 70% of bonds trade at 10 cents or lower

  • Restructurings to date:

    • 63 issuers representing USD120 billion in total debt value

    • By way of scheme: 29 by number (representing 46%). US$96 billion by debt value (representing 80%)

    • By way of exchange offer: 34 by number (representing 54%). US$24 billion by debt value (representing 20%)

  • Government focused on social stability (i.e. getting homes completed), getting trade suppliers and onshore banks paid

  • Reasons for restructurings taking so long: (i) interests not aligned amongst key stakeholders, (ii) limited new money injection from sponsors, (iii) limited or no collateral available, (iv) no haircuts or deleveraging to ensure post restructuring debt is sustainable, (v) lack of viable enforcement options for offshore creditors (i.e. hard and expensive to enforce) and (vi) uncertain outlook for prices as homebuyer confidence not restored

DHC Capital supported the conference as a breakfast sponsor.

About INSOL International

INSOL International is a world-wide federation of national associations of accountants and lawyers who specialise in restructuring, turnaround and insolvency. There are currently over 44 Member Associations with over 10,500 professionals participating as members of INSOL International.

The annual conference organised by INSOL International is the premier global event for the restructuring and insolvency industry with over 700 delegates attending.

David Chew1-30