HONG KONG • A growing chorus of observers expect debt defaults in Asia will spread as weakening currencies and tighter liquidity leave riskier borrowers with higher refinancing costs.
Rising failures add to headwinds that governments have to navigate during a politically fraught 2019, with elections in India and Indonesia. Asian dollar bond market defaults tripled to at least nine this year from the previous year, according to Bloomberg-compiled data.
In India, a landmark default by shadow lender Infrastructure Leasing and Financial Services has tightened liquidity for non-bank lenders, while China's deleveraging campaign and push to cut the number of zombie companies have prompted more failures.
Mounting non-payments may sour sentiment in the credit market, but could boost business for investors in problem assets.
Mr Edwin Wong, chief investment officer at Hong Kong-headquartered investment firm SSG Capital Management, which invests in distressed debt, sees the biggest opportunities in China and India amid tight liquidity.
The US-China trade war is also starting to hit companies as rising interest rates pressure businesses, according to FTI Consulting, a firm that advises on restructuring.
"We are setting up the business on the premise that we will see an increase in defaults in 2019," said Mr John Batchelor, Asia head for corporate finance and restructuring at the firm, adding that the company is looking to increase its head count in Hong Kong and China.
The crackdown on China's US$10 trillion (S$14 trillion) shadow banking market is also contributing to a rise in defaults, as many entrepreneurs have limited access to the nation's banking system, according to Mr Ron Thompson, a managing director at Alvarez and Marsal Asia who leads the firm's Asia restructuring practice.
The overhauled bankruptcy regime is likely to continue to put pressure on companies to sort out their debt problems or be forced into insolvency. The abrupt resignation of Mr Urjit Patel as central bank governor has prompted some to question his successor's independence.
While it is too early to tell what the new governor will do, the government's "concerted efforts" to clean up the banking sector and create better protection for creditors should remain, according to SSG's Wong.