Guide to Private Credit in Asia Pacific

Private Credit in Asia Pacific: Overview and Key Issues

Introduction

This guide, the third edition of the "Guide to Private Credit in Asia Pacific," summarizes key considerations for private credit providers across 14 jurisdictions in the region. Private credit is becoming increasingly important in various types of financings, including distressed and special situations credit, mezzanine facilities, infrastructure debt, and senior financings to support leveraged acquisitions. Despite banks dominating the overall financing market, private credit providers are filling the "financing gap" due to higher funding costs and increased regulatory scrutiny.

Market Trends and Growth

• Rising Institutional Interest: Private credit has become attractive to institutional investors seeking returns, risk diversification, and more opportunities.
• Sustainability and ESG: With the exponential growth in green/sustainability-linked loans, ESG and sustainability are growing in importance. Funds are now actively seeking to lend to companies with sustainable business models and are hiring dedicated sustainable finance teams.

Jurisdictional Considerations

Jurisdiction	Can a Fund Make a New Loan Without a Banking License?	Tax and Similar Charges Material Issue	Interest, Fees, Remuneration Agreed Freely	Direct Holding of Security
Australia	Yes (with exceptions)	No	Yes	Yes
Mainland China	Yes (with restrictions)	Yes	Yes	Yes
Hong Kong SAR	Yes	Yes	Yes	Yes
India	Yes	No	Yes	Yes
Indonesia	Yes	No	Yes	Yes
Japan	Yes	No	Yes	Yes
Malaysia	Yes	No	Yes	Yes
New Zealand	Yes	No	Yes	Yes
Philippines	Yes	Yes	Yes	Yes
Singapore	Yes	Yes	Yes	Yes
South Korea	Yes	No	Yes	Yes
Taiwan	Yes	No	Yes	Yes
Thailand	Yes	No	Yes	Yes
Vietnam	Yes	No	Yes	Yes

Enforcement Regimes

Jurisdiction	Relative Strength of Credit Support	Enforcement Regime Lender-Friendly	Permitted Loan-to-Own Transactions
Australia	Strong	Moderate	Yes (subject to insolvency laws)
Mainland China	Moderate	No	Yes (but not specifically permitted under HK law)
Hong Kong SAR	Moderate	No	Yes (considering foreign ownership restrictions)
India	Moderate	Moderate	Yes
Indonesia	Strong	Moderate	Yes
Japan	Strong	Moderate	Yes
Malaysia	Strong	Moderate	Yes
New Zealand	Strong	Moderate	Yes (subject to insolvency laws)
Philippines	Moderate	No	Yes
Singapore	Strong	Moderate	Yes
South Korea	Moderate	No	Yes
Taiwan	Moderate	No	Yes
Thailand	Moderate	No	Yes
Vietnam	Moderate	No	Yes

Market Specifics

• Australia: The private credit market continues to grow, driven by declining bank lending due to higher funding costs and increased regulatory scrutiny. Sustainability-linked loans are expected to grow. The Australian enforcement regime is creditor-friendly.
• Mainland China: Private credit is growing, but with some restrictions, particularly for onshore funds. Tax and similar charges can be a material issue.
• Hong Kong SAR: Private credit is strong, but the enforcement regime is less lender-friendly compared to other jurisdictions. Loan-to-own transactions are permitted but not specifically permitted under HK law.
• India: Private credit is moderately strong, with no significant tax or similar charge issues. Interest, fees, and remuneration can be agreed freely, and direct holding of security is possible.
• Other Jurisdictions: Similar trends are observed in other countries, with varying degrees of strength in credit support and enforcement regimes.

Conclusion

The private credit market in Asia Pacific is expanding rapidly, driven by the need for alternative financing and the growing interest of institutional investors. Jurisdictions vary significantly in their regulatory environments and enforcement regimes, offering both opportunities and challenges for private credit providers.