Private Credit Opportunities Emerge as Asia Banks Retreat

In Brief:

Asia's private credit market represents just 6% of the global market despite the region's economic significance, creating substantial opportunities as traditional banks retreat from complex cross-border financing. Chris Botsford, co-founder and Chief Investment Officer at ADM Capital, brings over 25 years of experience navigating Asian financial crises and building a firm that has averaged 16.8% unleveraged returns across all jurisdictions. Speaking on S&P Global Market Intelligence's Private Markets 360 podcast from his unique position as a pioneer who launched ADM during the 1997 Asian financial crisis, Botsford reveals how supply chain diversification and regulatory changes are driving demand for alternative financing solutions. His insights illuminate why sophisticated investors are increasingly viewing Asia's fragmented legal landscape not as a barrier, but as a competitive advantage for those willing to master its complexities.

Big Picture Drivers:

• Banking Retreat: Major international banks have pulled back from Asia due to geopolitical tensions and regulatory complexity, creating financing gaps for cross-border transactions

• Supply Chain Diversification: Companies are rapidly moving production across Asian countries to reduce risk, requiring financing that traditional banks cannot provide

• Regulatory Fragmentation: Each Asian jurisdiction maintains distinct banking regulations and legal systems, making cross-border deals too complex for conventional lenders

• Urbanization Pressure: Massive migration from rural to urban areas, particularly in India, is creating infrastructure financing needs that exceed traditional banking capacity

Key Topics Covered:

• Crisis Origins: How ADM Capital emerged from the 1997 Asian financial crisis using innovative in-specie subscription models to acquire distressed debt

• Deal Structuring: The importance of ESG integration, bilateral negotiations, and avoiding leverage to maintain flexibility during workout scenarios

• Geographic Complexity: Managing multi-jurisdictional deals where legal systems, foreclosure timelines, and collateral values vary dramatically between locations

• Capital Raising Challenges: How geopolitical tensions have shifted investor appetite away from Asia-focused private credit strategies

Key Insights:

• Opportunistic Positioning: ADM Capital originates 85% of its own deals by building advisor relationships with borrowers before lending, allowing them to understand underlying business risks and integrate ESG requirements into deal terms.

• Leverage Avoidance Strategy: The firm deliberately avoids portfolio leverage to ensure time works in their favor during workouts, contrasting with many Western private credit strategies that rely on borrowed capital.

• Legal System Navigation: Foreclosure timelines vary dramatically within single countries - from 18 months in downtown Kuala Lumpur to 10 years in remote Malaysian states like Sabah - requiring sophisticated jurisdiction-specific strategies.

• Collateral Control Benefits: Holding mortgages and title deeds prevents borrowers from accessing additional financing against the same assets, creating negotiating leverage even when court proceedings would be lengthy.

• Cross-Border Risk Distribution: Many deals involve borrowers in one country with underlying assets or government guarantees in another, requiring analysis of where actual credit risk resides rather than focusing solely on borrower domicile.

• Market Evolution Trajectory: As companies establish operations across borders with private credit bridge financing, local banks eventually provide refinancing once risks are understood and de-risked, creating natural exit strategies.

Memorable Quotes:

• "We tend to try and become an advisor, unpaid advisor to a borrower before we lend to them. And we'd really try to find out why they're willing to pay our outsized returns." - Chris Botsford, explaining ADM Capital's unique approach to private credit underwriting

• "Over the years, we've averaged about 16.8% gross across all jurisdictions. And you've got to ask why are we able to get that? What's different from the states perhaps is we don't leverage." - Chris Botsford, revealing his firm's unleveraged return strategy in Asia

• "Private credit in Asia is still pretty small as a percentage of GDP compared to what it is in the states or in Europe. Approximately 6% of the global private credit market is in Asia compared to perhaps 50% of GDP." - Chris Botsford, highlighting the massive growth opportunity in Asian private credit

• "The growth actually happened from over time it stopped being a distress market into being a market where there was really a need for more complicated finances as bridge finance." - Chris Botsford, describing the evolution of Asia's private credit landscape

• "We really want not only to understand really what's going on behind the scene but to have a dialogue with the borrower to make sure that everything is valid and everything hangs together but also because for risk mitigation primarily we put ESG KPIs into the deal terms." - Chris Botsford, explaining how ESG integration drives both returns and risk management

The Wrap:

Botsford's experience illustrates how Asia's private credit market is evolving from distressed debt opportunities into sophisticated cross-border financing solutions driven by supply chain diversification and banking sector retreat. While geopolitical tensions have complicated capital raising from traditional Western investors, the structural demand for flexible financing continues growing as companies navigate increasingly complex multi-jurisdictional operations. The key to success lies not in avoiding Asia's complexity, but in developing the local relationships and legal expertise necessary to turn fragmentation into competitive advantage.