Aurelia Butler

SINGAPORE (Reuters) – From India to Singapore, Asia is seeing a boom in private credit funds looking to tap into demand mainly from startups that are moving away from raising equity capital at a sharp discount to their valuations, known as ‘down round’ in the industry.At least $2.5 billion in new private credit funds have been launched or planned in the first half of this year targeting startups in a handful of Asian markets, according Reuters calculations based on reported deals and funds interviewed.The hectic pace of activity comes after private credit funds targeting Asia jumped 76% last year to a record $11.2 billion, driven by both regional and India-dedicated strategies, according to Global Private Capital Association.Industry watchers say the trend is likely to pick up momentum in the second half of the year as many financial investors take a hard look at traditional equity funding of startups because of global economic and market challenges, and instead increasingly set their sights on private credit funds.The funds expected to be launched soon include a $1.5 billion fund by Singapore’s SeaTown, $150 million India-focused fund by Modulus Alternatives and $200 million Southeast Asia fund by Europe’s 21yield, a source and company executives said.To be sure, private credit isn’t cheap, but this funding route has less stringent conditions attached to it than banks and offer an alternative to startups keen to avoid having their valuations scaled back sharply by down rounds.GROWTH OPPORTUNITY The upswing in private credit activity in Asia follows a similar trend in the United States where such funds are eyeing fresh opportunities from a potential borrowing squeeze as battered regional banks tighten lending after the turmoil in the sector.Private debt capital raised in North America totalled $150.1 billon last year, a tripling from $49.2 billion in 2012, according to research firm PitchBook, highlighting the growth opportunity in Asia in this space. Several major investment and private equity firms are also foraying into the private credit market to fill the chasm created in tech funding, especially debt financing, by the collapse of Silicon Valley Bank in March.”With the IPO market likely to stay frozen for some time and monetary policy to remain tight … the relative attractiveness of private debt funds will remain high for borrowers,” Nicholas Mairone, analyst at Preqin, said.As large global sponsors continue to invest into multi-billion dollar Asia-focused credit funds such as Apollo, Blackstone (NYSE:BX) and KKR, the Asian private credit industry is set for further boom, Robert Wright, partner in law firm Baker McKenzie, said.In comparison, private equity (PE) deals in the Asia-Pacific region excluding Japan has continued on a downward trajectory from last year, as the markets downturn has led to a plunge in startup valuations and dashed hopes of blockbuster listings.PE-backed deals totalled $66 billion in the first half, down 21% year on year, Refinitiv data showed. SeaTown declined to comment on it fundraising plan, while Modulus’ chief investment officer Rakshat Kapoor said there was good demand for growth as well as replacement capital for mid-size companies with “decent” credit profile.Referring to its own Southeast Asia-focused private credit fundraising plan, Camille Krejci, CEO at 21yield, said there was a huge financing gap for smaller companies such as startups in Asia.’DOWN ROUND’The largest regional private credit funds over the past year have been raised by the likes of Hong Kong-based PAG, Bain Capital, India’s Kotak Mahindra Bank, and Hong Kong’s ADM Capital. SoftBank Investment Advisers, which manages two Vision Funds, is exploring launching a private credit strategy that provides debt or debt-like structured financing for late-stage tech startups, Reuters reported last month.The string of new private credit funds come against the backdrop of startups facing the threat of having down rounds. Asian startups have seen their valuations sky-rocketing in the last few years as marquee equity investors vied to fund them.Dutch-listed technology investor Prosus (OTC:PROSF) NV has slashed the valuation of troubled Indian edtech startup Byju’s to $5.1 billion according to its annual report, a fall of more than 75% from the startup’s $22 billion valuation last year.”There is still a stigma attached to a down round and founders and investors are … looking at alternative financing options,” said Parthiv Rishi, a partner at law firm Sidley Austin.Nevertheless, alternative financing such as private credit does not come cheap, industry experts warned. Private credit firms usually arrange loans, with assets secured, on a floating rate basis. “These financing also come with strings attached such as fairly strict covenants on how the company can operate, and this might not be appropriate for certain growth stage companies,” said Siew Kam Boon, partner at law firm Dechert.”Interest rates is also on the rise and companies might also need to provide equity sweeteners.” More

WASHINGTON (Reuters) -The International Monetary Fund’s executive board on Thursday completed its first review of Ukraine’s $15.6 billion loan program, allowing Kyiv to immediately withdraw $890 million for budget support as it mounts a major offensive against Russia’s invasion.The board’s approval brings Ukraine’s withdrawals under the program launched on March 31 to around $3.6 billion so far.The IMF said Ukrainian authorities have made “strong progress” toward meeting reform commitments under “challenging conditions,” meeting quantitative performance criteria through April and structural benchmarks through June.”Russia’s invasion of Ukraine continues to have a severe impact on human and physical capital, and the environment, with loss of life, drop in living standards and rise in poverty, as well as damage to infrastructure,” IMF Managing Director Kristalina Georgieva said in a statement. “Nevertheless, the Ukrainian people have been resilient, and the authorities’ skillful policymaking and continued external support have helped support macroeconomic and financial stability,” Georgieva added.IMF Ukraine mission chief Gavin Gray told reporters the IMF is continuing to study the social, environmental and economic impacts of the destruction of the Kakhovka Dam earlier this month, which caused widespread flooding in southern Ukraine. Gray said the IMF initially expects the disaster to increase food prices and push up inflation in the country.Nonetheless, the IMF reiterated the 2023 Ukraine economic forecast, recently upgraded to growth of 1% to 3%, from a March forecast range of a 3% contraction to 1% growth, as the new loan program underpins the economy.The IMF loan program, approved under new rules that allowed lending into a highly uncertain situation, forms part of a total $115 billion package of support, with $100 billion coming from donor governments.The IMF expects to carry out its next review of Ukraine’s program in late November or early December, the official added.The IMF said it was important for Ukraine to continue its reform momentum, including strengthening its tax compliance, with new tax legislation expected in July, and to build a strong 2024 budget based on available resources.Gray said Ukrainian authorities also needed to continue work on strengthening governance and fighting corruption, with new legislation passed by the end of September.”These measures are important because their strategy of mobilizing resources for reconstruction requires private sector investors to be convinced that there is a level playing field in Ukraine, and for official donors to be convinced that their resources will be appropriately spent,” Gray added. More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.Asian markets bring an eventful first half of the year to a close on Friday with investors bracing for a raft of top tier economic data, particularly from China and Japan, and digesting yet another leg-up in global interest rate expectations. China’s purchasing managers index reports will give a first glimpse into how the factory and services sectors in the region’s largest economy fared in June, while Tokyo inflation is likely to be the most important of a batch of indicators from Japan that also includes unemployment and industrial output.Key releases from South Korea, Asia’s fourth largest economy, include retail sales, industrial output, and service sector growth for May. The Chinese PMIs will come under particularly strong scrutiny. Contracting activity in manufacturing is being offset by expansion in services, but overall growth is weak and authorities are coming under pressure to step in with substantial monetary or fiscal stimulus. Or both.The yuan is at a seven-month low and sliding toward a fresh 15-year trough against the dollar, trade with the rest of the world is falling, inflation is evaporating and growth forecasts are being slashed.The pick of Japan’s indicators looks like being Tokyo consumer inflation excluding fresh food prices for June, and what that might signal for monetary policy. Economists anticipate a tick up in the annual rate to 3.3% from 3.2%.The Bank of Japan, like its Chinese counterpart, is swimming against the global tide of tighter policy, the main reason why the yen is also at a seven-month low against the dollar and fueling BOJ intervention speculation.In fact, the yen is close to a 50-year low on a real effective exchange rate basis. With stocks hovering around 33-year highs and base rates still negative, financial conditions in Japan are the loosest since 1997, according to Goldman Sachs (NYSE:GS).Goldman’s emerging markets financial conditions index is the lowest in 16 months, which stands in contrast to developed economies where rates, bond yields borrowing costs of all stripes are rising sharply.The U.S. two-year yield jumped 15 basis points on Thursday, its biggest rise in a month, and traders are now pricing in at least one more quarter point rate hike this year. Fed Chair Jerome Powell this week indicated he thinks two will be delivered.The good news is rate expectations are being ramped up because the economy is strong. Thursday’s U.S. data were unambiguously positive – a chunky upward revision to Q1 GDP growth and the biggest fall in weekly jobless claims since 2021 point to ‘no landing’, never mind a ‘soft landing’ But growth and earnings will suffer at some point. The U.S. yield curve on Thursday inverted further to within a few basis points of the 40-year low seen in March. This is a warning sign that investors think something, somewhere, at some future point, will ‘break’.Here are key developments that could provide more direction to markets on Friday:- China PMIs (June)- Japan – Tokyo inflation (June)- U.S. PCE inflation (May) (By Jamie McGeever) More

Good morning. The US Supreme Court has curbed universities’ ability to consider race in admissions, a ruling that could have far-reaching consequences for diversity policies at employers across the country. The decision by the Supreme Court in two of the most high-profile cases heard this term marks a blow for affirmative action in the US. The cases against the University of North Carolina, a public university, and Harvard University, the private Ivy League institution, were brought by Students for Fair Admissions, a non-profit organisation seeking to abolish racial considerations in admissions.Students for Fair Admissions had argued the practice benefited black and Hispanic students to the detriment of Asian Americans and others. It asked the court to over-rule Grutter vs Bollinger, a 2003 Supreme Court decision that allowed universities to consider race in admissions by reaffirming that diversity is in the US government’s interest.In the majority decision, the court’s six conservative justices held that affirmative action in the schools’ admissions programmes — which for decades have been a cornerstone of efforts to boost diversity in student bodies — violated the constitution’s equal protection clause.Students “must be treated based on his or her experiences as an individual — not on the basis of race”, Chief Justice John Roberts wrote in the majority ruling.Here’s what else I’m keeping tabs on today and over the weekend:Economic data: Japan and Germany release unemployment rate figures, France publishes consumer price data and the UK releases final first-quarter GDP figures.Sport: The 110th Tour de France cycling race begins on Saturday with a 182km medium-mountain stage beginning and ending in Bilbao, Spain.Diplomacy: Emmanuel Macron begins a three-day state visit to Germany on Sunday, the first such trip by a French president in 23 years.Five more top stories1. Top Russian army general Sergei Surovikin has been detained amid Vladimir Putin’s crackdown on Wagner sympathisers following the militia’s failed mutiny last week. It remains unclear whether Surovikin has been charged as a plotter in the uprising or simply detained for interrogation, and where he is being held. Read more about Putin’s clean-up operation at the top of the security services. War in Ukraine: The EU has agreed to offer “future security commitments” to Ukraine as the bloc’s leaders seek to agree long-term pledges for Kyiv against the backdrop of rising instability in Russia and entrenched battle lines in the war.2. China has passed a new foreign relations law that deepens President Xi Jinping’s control over the country’s external relations and strengthens the government’s legal basis for “countermeasures” against western threats to national and economic security. However, the legislation could undermine Beijing’s efforts to attract overseas investment. 3. The suspected Chinese spy balloon that was shot down in the US earlier this year was using some American technology, according to a preliminary analysis by the FBI. The finding that the spy balloon was carrying some US surveillance technology was shared by the FBI with some US lawmakers in March.4. The UK’s stubbornly high inflation has convinced senior policymakers at the European Central Bank to maintain their aggressive stance on raising interest rates to avoid being accused of failing to contain price pressures. “We have seen what happened in the UK and we don’t want the same thing to happen to us,” a eurozone rate-setter told the FT. Read the full story.5. Google said it would shut down its Google News service in Canada and block links to news in its search engine in the country, following passage of a law that would force it to pay Canadian publishers for links to news. Read more about the showdown between Canada and Google over paying publishers.How well did you keep up with the news this week? Take our quiz.The Big Read

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Over the past quarter of a century, Chinese carmakers such as BYD, Nio and Great Wall have become experts in electric vehicles and battery technology. With their home market largely conquered, the companies have set their sights on Europe, where sales of new cars with petrol and diesel engines will be banned by 2035.We’re also reading . . . China’s military: Whatever Yevgeny Prigozhin was plotting in Russia last week — mutiny, insurrection, civil war — would never have been possible in China, writes Charles Parton. Trump comedy: Whether we find his humour amusing or offensive, Donald Trump’s good comedic timing makes him a big electoral threat, writes Jemima Kelly.Climate change: For many well-off people, the first tangible effect of rising temperatures will be a shift in vacation destination. Chart of the dayBank of America’s decision early in the Covid-19 pandemic to bet big on the bond market is now weighing on the bank’s net interest margin, an important gauge of performance that measures how much profit a bank makes on its loans and investments. For years, JPMorgan and BofA were neck and neck on this yardstick. But in the past year, JPMorgan has pulled ahead.Take a break from the newsAfter she fled to South Korea, Kim Joo Kyung couldn’t stop thinking about her first love. So she decided to try to find him. Read this gripping story of two North Korean defectors in FT Magazine.

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Additional contributions by Grace Ramos and Gordon Smith More