08 April 2020

Asia-Pacific COVID-19 Intelligence Highlights

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Introduction

Asia has been on the frontline of the coronavirus crisis for over three months. As companies, advisors and investors across the region react to this unprecedented situation, Acuris’s market-leading products provide news, data and analysis to help you make better business decisions. Mergermarket and AVCJ help corporates, private equity houses and bankers identify M&A opportunities while Debtwire provides unrivalled insight into credit situations as they unfold. Investors, legal advisors and companies rely on Dealreporter and PaRR to track equity markets and make sense of the fast-moving regulatory landscape while Inframation provides financing and trading intelligence and data for the global infrastructure and energy sectors.

This report contains a selection of our coverage on how the COVID-19 crisis is impacting different markets in the region produced by our in-country teams of editors and analysts across Asia. We hope you find it useful.

Please feel free to contact us to learn more about how we can help you stay better informed during these difficult times – and beyond.

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Acuris Asia-Pacific COVID-19 Intelligence Highlights

Mergermarket is an unparalleled M&A news and intelligence tool specifically targeted to generate opportunities for corporate advisory outfits and private equity firms.

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Mergermarket Intelligence

Introduction

The COVID-19 pandemic has disrupted global M&A and IPOs on a massive scale this year. It has caused a sharp slowdown in APAC deals, with the region seeing a 32.7% YoY decrease in deal value - the lowest quarterly value since 1Q13.

Mergermarket has continued to provide the most relevant insights and opportunities to help subscribers navigate through this uncertainty. From exclusive interviews on how companies are changing strategies to timely updates and scoops on sale processes, Mergermarket readers hear it first.

We strive to identify future M&A opportunities for dealmakers as struggling companies seek out restructuring or financing measures to weather the storm. Mergermarket also helps corporates and private equity firms identify distressed M&A targets.

Below is a selection of articles analysing COVID-19's immediate impact on APAC M&A deal flow and identifying the key issues to track in the months to come.

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14 Feb 2020China dealmakers brace for slowdown amid COVID-19 outbreak

• Market comeback expected in 2H

• Domestic M&A likely to surge due to cashcrunch

• Deal settlement unlikely to be impacted

The SARS-like coronavirus outbreak will disrupt the natural flow of China M&A activity, but the impact remains limited to timeline slippage and investors expect a deal ramp-up in the second half of this year, according to several dealmakers polled by this news service.

Deal origination and execution are affected in the first quarter due to nationwide quarantine measures ordered by the Beijing to fight with the epidemic which lead to 1382 fatalities so far, they said. Technology is alleviating the problem but cannot fully cushion the blow. China’s State Administration for Market Regulation (SAMR) now requires merger filings to be carried out either online or by post due to the outbreak.

Deal activities YTD have experienced a free fall compared to the same period last year. From the beginning of this year until 10 February, China including Hong Kong recorded 84 deals with total deal value worth USD 8.411bn, down 54.1% and 76.6% respectively, compared to the same period last year, according to data from Mergermarket.

However, the deal surge following SARS

epidemic in 2003 might hint on M&A outlook for the second half of this year. China recorded USD 6.58bn M&A deal during 1H03, but the deal value soared to USD 20.6bn in 2H03 when the outbreak calmed, according to Dealogic data. Acuris and Dealogic are both owned by ION Group.

Between November 2002 and July 2003, SARS caused 774 deaths reported in 17 countries with the majority of cases in mainland China and Hong Kong.

Blessing in disguise

Some PE investors however see this contagion as a blessing in disguise as the ongoing economic shockwave is accelerating industry consolidation and benefit those who have invested in the industry leading players. In addition, some cash-rich and star companies, used to shutting their doors to financial investors, are reconsidering financing strategy and will be receptive to investor approaches to weather the abrupt crisis, according to a Shanghai-based private equity investor.

Valuation adjustment is also within expectation, with the first quarter financial performance likely to hit bottom line, but significantly, discount appears to be unlikely, the investor said.

The contagion changed consumption patterns and at the same time created a boost for online application. The outbreak is especially

taking a toll on China leisure sector including travel, entertainment, catering, brick and mortar retail chains and offline education centers, as well as transportation sector, he added. But meanwhile, online gaming , online education, live-streaming and short video sharing platform, online fitness app, e-commerce apps, enterprise collaboration apps are gaining ground, according to the Shanghai based investor.

GGV Capital recently announced that it funded Shenzhen-headquartered Mogulinker Technology Co Ltd, a software-as-a-service (SaaS) provider, in its Series B round which offers real-time running data that can connect manufacturers, suppliers, equipment and users for optimal operations.

Industrial companies will likely speed up hunting for smart manufacturing bolt-on buys, as the situation fully unveils the importance of digital solutions for traditional manufacturing companies, an investor manager from a state-owned enterprise said.

However, buyers are unlikely to drastically change their investment strategy in response to the ongoing epidemic as the issue remains temporary, the investor said.

Liquidity crunch

The domestic M&A deals might surge because of financing difficulties confronting China’s small and mid-sized enterprises, forcing

many to shut stores and suspend production temporarily as the cash flow crunch has led to seeking financial bailout. Several companies may be forced to sell at a lower price to raise funds, as banking loans would become difficult, according to an inbound M&A advisor.

The coronavirus repercussions on the economy marks the latest in a series of setbacks to the economy over the past years, forcing the central bank to boost the provision of liquidity in the markets. Beijing announced to pump CNY 1.2 trn into financial markets as it ramped up support for the virus fight, as reported. However, it implies a steep deterioration in debt to equity and debt to GDP ratios across the system, according to the Shanghai-based investor.

In the meantime, a potential wave of corporate sale might coincide with disposals made by companies looking to re-focus on their major businesses, to help alleviate financial stress.

Chinese companies, both SOEs and private companies, have enjoyed a huge passion for diversification strategies, snatching assets that they don’t really need, over the past few years, especially during the outbound M&A craze before 2018.

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by Ling Yang and George Shen in Shanghai, Jennifer Zhang in Chongqing and Riccardo Ghia in Hong Kong; analytics by Neal Zhang

Mergermarket Asia-Pacific COVID-19 Intelligence Highlights 4

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16 Mar 2020Japan Inc adopts ‘wait-and-see’ stance for M&A amid COVID-19 recession fears

by Ryuya Shiga, Nozomi Toyama, Mai Mizuta, and Takuma Sasaki

• Nikkei 225 has plunged 25% since start ofthis year

• Acquisition opportunities for strategics andprivate equity remain

• Current inflated valuation to seereadjustment

Japan Inc is largely adopting a “wait-and-see” stance with regards to M&A deals against the backdrop of a potential global recession sparked by the COVID-19 outbreak, according to dealmakers polled by this news service.

Some advisors also noted that a few of their deals had been terminated and/or stalled due to increasing uncertainty. “For both sellers and buyers, it is not the right timing to push deals forward as conditions have changed subsequent to the outbreak,” the first banker and an advisor said.

Eiichi Yamazaki, head of global advisory at Mizuho Securities, said the importance of M&A as a business strategy would remain unchanged. However, it could be less of a priority now as companies respond to more urgent issues. The current situation prevents dealmakers from conducting site visits and meetings, and cross-border deals in particular are being impacted. Processes such as auctions and researching targets are being affected, he added.

There had been a healthy pipeline of deals since the start of 2020, but many of these have now been suspended as decisions at the management and board levels have been put on hold, the second banker said.

The third banker noted there would be fewer RFPs in the coming months. “The key question is how long this will last and what the real impact is,” he added.

Companies such as Tokyo-based telecommunication company KDDI [TYO:9433] noted it had no plans to cancel or postpone any investments due to the novel coronavirus as of now. Tokyo-based IT service provider Fujitsu [TYO:6702] said it could not immediately comment about COVID-19’s potential impact on M&A.

Meanwhile, Unizo Holdings [TYO:3258] announced last week that it was planning to sell properties valued at about JPY 130bn (USD 1.2bn) in April 2020 or thereafter. It noted that due to declining asset values because of increased uncertainty about the future on account of COVID-19 and other factors, it was scaling up asset sales. Separately, news reports have also pointed out that Unizo may be accelerating asset sales aimed at securing funds to conduct an employee buyout and reducing the company’s enterprise value to fend off takeover attempts from other bidders.

Dai-ichi Life Research Institute’s Executive Chief Economist Toshihiro Nagahama expects

the number of deals in Japan to decline temporarily as many Japanese companies need to allocate funds, which had been set aside for M&A, to respond to the crisis. However, government stimulus packages offered to companies in the event of a recession should enable them to return to the M&A market relatively soon, he noted.

Mark Weeks, partner at Orrick, pointed out that lower stock prices and appreciation of the Japanese yen could present buying opportunities for far-sighted Japanese buyers. Recent inflated valuations are being adjusted downward due to the coronavirus outbreak. Japanese companies keen on acquiring cutting-edge technologies, including artificial intelligence and big data, may now see such targets within their grasp, he continued.

Lower share prices could bring an uptick in unsolicited takeover offers from strategics with strong balance sheets, Weeks said. Targets with weak balance sheets or a negative outlook due to a recession or downturn in their industries, such as travel and leisure, may be especially vulnerable, he noted. Private equity and activist funds also intensify their investment efforts under such circumstances, he added.

Private equity buyouts – opportune timing?

Meanwhile, the first banker noted that private equity firms are gearing up for potential buying opportunities. For private equity, a recession is not an immediate issue as funds already

have dry powder to invest, he said. In fact, it should be a great time to acquire companies at reasonable valuations and there should be numerous turnaround targets coming up in the market, he added.

A private equity source echoed this view and said that during such a phase, there is a certain period where the expectation between sellers and buyers do not match immediately - sellers tend to keep higher expectation based on the previous price range, while buyers are seeing the bottom, he continued. This sort of mismatch will be resolved soon after companies enter into bankruptcy, and owners will get to know what the real range is, he noted.

Prior to the outbreak, Japanese private equity activity had been on the rise, helped by banks aggressively extending financial leverage to about 10x EBITDA due to the negative interest rate policy adopted by the Bank of Japan, the fourth banker said. However, in light of the ongoing situation, financial leverage could contract to below 5x or even 3x EBITDA and this would affect private equity activity in terms of investments and exits, the fourth banker added.

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Mergermarket Asia-Pacific COVID-19 Intelligence Highlights 5

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16 Mar 2020Coronavirus to add impetus to ‘cross-sector’ M&A as corporates target tech to support core business

• Driven by need to keep up with digitization

• Coronavirus to put spotlight on certainsectors

• Solutions that solve niche problems will betargeted

Australian corporates are expected to increasingly make “cross-sector” M&A moves across the board as they invest in or acquire technology companies to support their core business activities in 2020, with the coronavirus pandemic providing added impetus, according to advisory and industry sources polled by this news service.

Technology will be one of the top sectors for investment and acquisition in the next 12 months as pressure to embrace digitization to drive growth compels executives to acquire outside of their sectors, said EY Oceania Transaction Advisory Services Leader David Larocca.

According to EY’s latest bi-yearly Global Capital Confidence Barometer, featuring interviews with some 1700 global executives and including 170 in Australia, 66% of Australia and New Zealand interviewees expect cross-sector M&A to be driven by technology and digitization, compared to 75% globally, with key drivers being the race to secure new technology and talent (both at 23%).

No company can escape the move to technology and M&A will primarily be driven by the need to keep up with digital innovation, cut costs, and boost revenue and efficiency, agreed Rajeev Gupta, partner at Sydney-based investment firm Alium Capital. This trend has been big in the US in the past four to five years and Australia is now catching up, he said.

The coronavirus pandemic is a development that will add impetus to technology investment, particularly in the fields of remote working, employee engagement, business continuity, and digital client services, said John Sheehy, CEO of Sydney and New York-based corporate advisory firm Pottinger. None of this is new, but the pandemic is going to shine a light on the value of good technology in these areas and will also serve as a reminder of the value of human-to-human connection as we enter a more isolated online world in the coming months, he noted.

Technology businesses that are asset-light may benefit once the virus situation stabilizes, Alium Capital’s Gupta added. The key is to maintain low costs and cash burn in an environment when the economy is generally weaker, he said.

Technology M&A can allow corporates to leapfrog long internal technology development programs and plug critical gaps in IP arsenal,

but care is needed in planning to ensure the underlying strategic logic of the transaction is preserved and maximum value is unlocked, Pottinger’s Sheehy added.

Ubiquitous across sectors

The trend towards technology investment will be ubiquitous across all sectors, experts agreed, with EY’s Larocca highlighting sectors that are facing disruption like healthcare and financial services. Healthcare, in particular, could see heightened activity in the wake of the coronavirus pandemic, sources agreed.

Tele-health, for one, which has suffered from inertia and lack of government support to date, could well get the boost it needs in the current environment, Gupta said. Education certainly has merits to being delivered online and with the current coronavirus pandemic, online learning may well flourish, he added.

A report from Bombora Investment Management on Friday (13 March 2020) highlighted Pacific Knowledge Systems [ASX:PKS], whose healthcare software is used in pathology labs, and education technology company Janison [ASX:JAN] as among those that could benefit from current conditions.

In the financial services space, the Australian Securities Exchange [ASX], for one, has invested USD 30.9m in blockchain

startup Digital Asset to date, while insurance broker network AUB Group [ASX:AUB] invested AUD 132m for a 40% stake in Sydney-based online, low-cost and commercial insurance distribution platform Bizcover this February.

Also in education and services, Sydney-based wealth education and services provider DG Institute told this news service in January it is seeking buys and is particularly keen on technology-based services companies that can fast track its in-house technology development.

There has also been aggressive activity in the consumer sector with companies making acquisitions to support their online businesses, noted Alium Capital’s Gupta, citing as an example Wesfarmers’ June 2019 purchase of online retailer Catch Group for AUD 230m to accelerate its ecommerce and digital capability.

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by Louise Weihart in Sydney

Mergermarket Asia-Pacific COVID-19 Intelligence Highlights 6

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17 Mar 2020Southeast Asia deals on uncertain footing due to COVID-19 fallout but bright spots in health, e-commerce/tech, supply chains emerge

Dealmaking in Southeast Asia, the first region to see the most COVID-19 infections after the Lunar New Year, has become murkier with fundraising and deal timetables up in the air amid volatility in the financial markets, according to industry advisors. However, bright spots in several regions are emerging from the commotion and dealmakers are taking note of these.

Singapore

In Singapore, the hardest-hit businesses by the pandemic are retail, food and beverage (F&B), and hotels as it was among the first after China to hit the red button in terms of limiting human movement to stem the spread of the virus.

This news service reported, before Lunar New Year, that Eu Yan Sang, a Singapore-headquartered manufacturer and retailer of traditional Chinese medicine, may be seeking a sale. However, the process may be put on hold as the region reels from the economic effects of the pandemic, as reported by Reuters last month.

That said, deals in healthcare, education, and services are still ongoing or are still scheduled to be launched in 2Q20, according to advisors. The launches, however, will be slower than usual due to travel limitations and remote work arrangements, they said.

Certain sectors including data centers, digital healthcare, online education, e-commerce, and other technology providers that provide delivery of these services are also faring well, the advisors noted.

Singapore-based online retail cashback firm Shopback just raised USD 30m in a funding round led by Temasek, with Rakuten [TYO:4755], EV Growth, Cornerstone Ventures, EDBI and 33 Capital joining the round.

Meanwhile, traditional industries such as manufacturing and construction need to reduce their reliance on labor and adopt a smart/automation approach to better manage the risks of a similar labor shortfall in the future due to quarantine and immigration control, the advisors said. There are opportunities for investors to provide funding for the upgrade of these businesses, they noted, adding that upgrades may be necessary to support business supply chain diversification, so firms do not rely on a few geographies for procurement of key resources.

Thailand

This global supply chain disruption is a bright spot for Thailand as international companies have been searching for other locations outside China as alternative manufacturing hubs, or for diversification of their supply chains. According to Country Group Securities Managing Director Ashwani Ahuja, there has

been a rise in inquiries in the last two months from companies looking to make direct investments/to acquire companies related to supply chains in Thailand. Companies that have been inquiring about investment opportunities belong to these sectors: medical equipment, sportswear, furniture, food additives manufacturing, food processing, and pharmaceutical.

Meanwhile, hotel and tourism-related businesses are bearing the brunt of the COVID-19 fallout but this will give rise to buying opportunities as there are more inquiries for boutique hotels that may be up for sale, Ahuja said. E-commerce retailers and logistics firms that provide home deliveries are doing well during this pandemic as people tend to avoid commuting as much as they can, he added.

The National Economic and Social Development Council (NESDC), the Thai government’s economic planning agency, last month projected Thailand’s 2020 GDP growth would slow to between 1.5% and 2.5%, from 2.4% last year. Kasikornbank, Thailand’s largest commercial bank, even projected growth would be at a paltry 0.5% given that the COVID-19 outbreak has affected major contributors to the economy. Prasert Tantayawit, managing director at Maybank Kim Eng Securities (Thailand)’s Investment Banking Department, said it was likely all or almost all IPOs would be delayed.

Philippines

The country’s National Capital Region, which contributes about 40% of national GDP, is on a lockdown that started midnight of 15 March. Several provinces outside Metro Manila implemented their own lockdowns to contain the spread of the virus, further curtailing commerce. The pandemic could cut the country’s growth to 5.7%, much slower than the government target of 6.5% to 7.5%, according to New York-based think tank, Global Source.

All businesses nationwide are disrupted and tourism and allied services such as aviation, hotels, malls, restaurants, entertainment, ports, and logistics are now taking a beating from this pandemic, First Metro Investment Vice President Cristina Ulang said. Margin compression may also temporarily dent cash flow predictability and weaken debt service coverage ratios, she added.

RCBC Capital President, Jose Luis Gomez, said the general slowdown in economic activity could reduce the need for more borrowing despite rates being generally more favorable to borrowers.

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by Likha Cuevas Miel, Lizzie Ko, Krista Montealegre, Warangkana Tempati, Tony Goh, I Made Sentana, and Anh Duy Giap

Mergermarket Asia-Pacific COVID-19 Intelligence Highlights 7

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Inframation is the world’s leading intelligence provider for infrastructure finance professionals, supplying real-time information on the projects, politics and people shaping the infrastructure finance sector.

Inframation Asia-Pacific COVID-19 Intelligence Highlights 8

Inframation Intelligence

Introduction

Just when Asia seemed to be limping back to a limited degree of normalcy, COVID-19’s renewed spread around the world has sunk hopes of a quick resurgence of market activity.

With face-to-face meetings - probably more crucial in Asia than elsewhere - now taboo, investors and other market participants are beginning to realise an important truth: that the wait-till-it’s-over approach may have run its course. It is time now to devise strategy taking into account the pandemic, rather than waiting for it to end.

Central banks in Asia, from China and India to New Zealand and Singapore, have announced extensive easing to offset the impact. The markets have responded in short, optimistic bursts before creaking under the reams of bad news from around the world.

Many deals - including by China Three Gorges and a host of airport transactions, especially in Southeast Asia - have been put on ice, with no word yet on when or if they will resume. From a macro perspective, S&P suggests that Asia-Pacific economic growth will more than halve this calendar year to sub-3%, and that China’s will come in at 2.9%.

While the negativity has come thick and fast, some investors will now be preparing to look beyond and prepare for the uptick. Below is a selection of insightful content from Inframation, including what has happened and what is likely to come.

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by Rob Clowe and Celine Ge

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18 Feb 2020 Coronavirus Stalls China Three Gorges Stake Sale

From our sister publication SparkSpread

China Three Gorges’ sale of a minority stake in its global portfolio has been put on hold as the country grapples with the coronavirus outbreak, according to sources familiar with the matter.

The state-owned company is based in Hubei province, the epicentre of the epidemic that has accounted for more than 1,800 fatalities so far. Three Gorges started looking for an investor last year in an effort to recycle capital and diversify its ownership. CITIC Securities is financial advisor for the sale. State Grid Corporation of China is engaged in a similar sale process.

In addition to its power assets, the company has interests in infrastructure assets including Beijing Enterprises Water and Changjiang Ecological Environment Group that boast a raft of water PPP projects along the Yangtze River.

The company was formed to own and manage China’s largest dam on the Yangtze. It controls more than two dozen subsidiaries, which in turn hold South Asian, Latin American and European assets. Some of the company’s interests - such as its 23% stake in Energias de Portugal (EDP) - are minority positions.

The company’s corporate structure will likely need to be tidied up before any transaction is concluded, sources previously told SparkSpread.

China Three Gorges continues to pursue opportunities outside of its home country. It competed unsuccessfully to buy the 396 MW Merkur offshore wind farm in Germany, which was sold last year to APG and The Renewable Infrastructure Group. It is also bidding for global solar developer Fotowatio Renewable Ventures.

Last year, the company tried and failed to increase its stake in EDP to above 50%, but it continues to work with the Portuguese company in Europe and Brazil.

It is also working with SinoHydro and Spain’s ACS Group on the slow-moving USD 14bn, 4,800 MW Inga III hydropower project in the Congo.

Officials at China Three Gorges did not respond to requests for comment.

Further informationGet in touch or read more

Laurence Edwards

Inframation Asia-Pacific COVID-19 Intelligence Highlights 9

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Laurence Edwards

11 Mar 2020 Brookfield suspends Dalrymple coal terminal sale

by Shaun Drummond

Brookfield has suspended the sale of its AUD 2.4bn (USD 1.5bn) Dalrymple Bay Coal Terminal due to travel bans and market ructions caused by Covid-19, a source close said.

Travel restrictions due to the Covid-19 pandemic have made it difficult to hold meetings and site tours with potential buyers, the source said.

Brookfield is running a dual-track trade sale and IPO process to sell the coal terminal, located near Mackay in Queensland, 1,000km north of Brisbane.

Equity market volatility, caused by escalating fears over the spread of the virus, has scuppered any immediate plans for the IPO, the source added.

Late last month, BAML and HSBC fielded indicative bids for the trade sale, while Citi and Credit Suisse, who are advising on the IPO, kicked off the roadshow at the beginning of March in Melbourne and Sydney.

Additional meetings were planned with Asian, European and US investors.

Brookfield has set no timeframe to resume the sale. The infrastructure manager will monitor the impact of the virus over the next few months before making its decision.

A Brookfield spokesperson declined to comment for this report.

Brookfield has owned Dalrymple Bay since 2010. It is jointly held by Brookfield Infrastructure Fund 1 (BIF 1), the publicly listed Brookfield Infrastructure Partners and other co-investors, according to Inframation Deals.

Brookfield holds a 50-year lease with a 49-year option to operate, maintain and develop the terminal.

Inframation Asia-Pacific COVID-19 Intelligence Highlights 10

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by Celine Ge and Chenyu Liang

27 Mar 2020In-Depth: Covid-19 Will Trigger A New Infra Boom In China

China’s economy still has a long road ahead to full recovery following an unprecedented two-month lockdown and a 10-week halt of almost all business and social activities for the 1.4 billion population nation.

Last week the country’s National Bureau of Statistics recorded the slowest growth in industrial output in almost three decades. Goldman Sachs had already predicted China’s first-quarter GDP growth would experience a 9% contraction, from a previous forecast of 2.5% growth.

To revive an economy that has been stricken by the COVID-19 pandemic, the Chinese government has resorted to an old-fashioned approach of boosting infrastructure investment. But this time central government has made it clear that the private sector will likely play a much greater role.

It is against a backdrop of debt-ridden local government investment vehicles faced with tight fiscal budgets and an ambitious target to roll out new big-ticket projects.

New infra, old thinking

According to sources spoken to for this article, digital and social infrastructure assets recently promoted by the government are naturally more suitable for private-sector investment and operations.

“What’s special this year is the active involvement of the private sector, because many parts of new infrastructure can be well commercialised,” Su Yue, an economist with the Economist Intelligence Unit told Inframation.

His remarks were echoed by Morgan Stanley Chief China Economist Robin Xinjin, who predicted in a press briefing last week that more than half of the “new infrastructure” investment being promoted by the central government could come from the private sector.

Infrastructure owners, including data centres in major Chinese cities, could potentially benefit from targeted preferential policies such as tax waivers and electricity cuts, he said.

China’s latest push for the development of data centres, 5G telecom and other so-called “new infrastructure” assets was first officially revealed by the transcript of a Communist Party Politburo meeting chaired by President Xi Jinping earlier this month. The ‘new investment’ theme was later reiterated in multiple speeches and reports released by various government agencies including the country’s economic planner National Development and Reform Commission. The instructions, given by the Politburo – China’s highest decision-making body – include a special focus on motivating private sector investors.

The ‘infrastructure investment boom in the making’ involves dozens of provincial governments and a raft of infrastructure project plans that could total investment of more than CNY 25trn (USD 3.6trn) over the coming years. Projects singled out by the authorities include 5G infrastructure (particularly telecom towers), ultra-high-voltage transmission lines, smart city projects, high-speed inter-city railways and data centres. Social infrastructure, particularly healthcare, was highlighted as another focused sector for new projects.

“We see a phenomenal increase in the central government’s emphasis on digital infrastructure since the outbreak of Covid-19,” Ping An Securities analysts led by Yan Lei wrote in a note to investors. One of the main reasons behind the move, the note said, is that the “new infrastructure” will likely be backed mainly by private investors and therefore ease financial pressures on the government.

Data centres

Demand for data centres exploded after tens of millions of Chinese residents were asked to study and work at home as a result of the virus.

“In the longer term, this trend of digitalisation is irreversible,” Yan Lei wrote.

Driven by a favourable policy environment, there will be a rising number of large-scale

and hyper-scale data centres including those powered by renewable resources, according to Ping An.

While large cities such as Beijing, Shanghai, Guangzhou and Shenzhen might have limited room for data centre market growth due to strengthening regulations, more projects could emerge in their neighbouring cities, as well as northwest and southwest China, where there are lower electricity tariffs and sufficient land supply, the note said.

China’s data centre market is set to reach 3.267 million racks in total capacity by the end of this year, up from 2.03 million in 2018, according to China Academy of ICT.

“Data centres are categorised by the central government as a type of new strategic infrastructure in China,” William Huang, chairman with the country’s largest private data centre developer by assets GDS says.

His company was invited by the government to discuss potential relaxation of regulations for data centre development in first-tier Chinese cities such as Beijing and Shanghai as part of the plan to cultivate the industry.

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by Rouhan Sharma

27 Mar 2020News Analysis: India’s Road Builders Face Crucial Quarter As Hopes Turn Sour

"Revenue will be affected due to the precautionary measures that are necessary during this pandemic.”

Mumbai-based Welspun Enterprises earlier this week said it is halting work across all its offices and project sites till further notice. The duration of this shutdown will depend upon further direction from the government, Welspun said in an exchange filing.

Yesterday, infrastructure developer PNC Infratech said it is temporarily suspending construction activity and toll collection. The company is in the process of notifying authorities about its decision and will invoke force majeure, it said in an exchange filing. It added that it is yet to quantify the impact of the shutdown.

Construction impact

India’s main road building agency, the NHAI, expects that construction in March will fall to less than half its target.

“We were expecting about 500km of roads to be constructed in March but less than 200km will be constructed because of the lockdown measures,” a senior official at NHAI told Inframation.

Companies have either scaled down or shut operations after several states sealed their borders, allowing only essential items to pass, the official said. The transportation of bitumen and cement, which are required for construction of roads,are not considered

essential in the current context. About 2,900km of roads had been awarded by NHAI this fiscal year that began April 2019.

“Successful bidders for these awarded projects are going to be delayed as an entire chain of events from financial closure to notifying the start dates for construction will all get extended,” he said. Banks are expected to slow disbursals due to a scarcity of manpower, impacting financial closures, working capital requirements and payments to suppliers.

Bank credit to industry declined to 2.4% in November 2019 from 4% a year earlier, according to data from India’s central bank. While some industries recorded a higher credit growth, the infrastructure sector saw a decline, the central bank said.

About 25% of the projects awarded under the hybrid annuity model in 2018 are yet to start construction, according to Mumbai-based brokerage Spark Capital. Over a third that were awarded in 2019 are still awaiting a formal concession agreement. Much of this is owing to challenges in securing financing, the brokerage said in a recent report in February.

Only option

Nashik-headquartered road builder Sadbhav Engineering expects it will take up to a month for normalcy to return even after the lockdown.

“The only option is to try and make up for lost revenue when we are back on the ground

again,” said Nitin Patel, executive director at Sadbhav, but added that the industry had better brace itself for a challenging period.

All the officials Inframation spoke to said they are evaluating their legal options and may invoke a force majeure clause in their contracts. Lawyers said there have already been instances where the coronavirus has had an impact on deal negotiations and contract drafting.

“We recently worked on a transaction where the coronavirus was included as a disclosure to the material adverse change,” said Mohit Gogia, partner at S&R Associates. “That transaction had a linkage to the travel industry, and the disclosure was accepted given the current situation.”

Dibyanshu Sinha, a partner at law firm Khaitan & Co., said that companies have “have already decided to invoke force majeure but it will have to be linked to how it affects the performance of contractual obligations in terms of inability to perform and will also depend on the terms of each contract.”

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Inframation Asia-Pacific COVID-19 Intelligence Highlights 12

India’s road developers, hit by a liquidity crunch and looking forward to a pick-up in construction after an extended monsoon, are now facing a potentially crippling blow brought about by the coronavirus shock.

Apart from deals slowing and corporate face-to-face meetings now taboo, the other concern is the inability of construction workers to reach sites as India implements the world’s biggest COVID-19 related population lockdown, says KV Rao, Hyderabad-based general manager of finance at KNR Constructions.

The January-March dry season - usually critical as road developers race to catch up with construction during the dry season - was more important this year as 2019’s monsoon rains lasted well into November. This is also the time when the National Highways Authority of India speeds up the awards process to fulfil its annual target. India is now in the third day of a 21-day countrywide lockdown to battle COVID-19.

The government has taken several other steps, including ordering the closure of all toll booths and clarifying on 19 February that supply chain disruptions due to the pandemic can be considered force majeure.

“We had been operating at about 35% capacity but we have taken the decision to completely halt operations across all locations and we have also informed the stock exchange about it,” Rao told Inframation.

inframationgroup.com

AVCJ is the leading source of information on private equity and venture capital activities in Asia.

AVCJ Asia-Pacific COVID-19 Intelligence Highlights 13

AVCJ Intelligence

Introduction

Over the past couple of months, COVID-19 has created untold disruption, coursing through Asia and into global markets. Private investors across the region are helping portfolio companies in operational and financial distress. We don’t know when the crisis will abate. Meanwhile, new deals are sparse, exits are stuck in a holding pattern, and fundraising is a challenge for all but the lucky few. Chaos inevitably throw ups opportunities, but investors need to get the timing right.

AVCJ will continue to provide coverage of how Asia’s private equity and venture capital industry is responding to COVID-19. Comparisons to the SARS outbreak in 2003 and the global financial crisis in 2008 are drawn with a degree of caution, recognizing that the context and contributing factors are different. However, there is one irrefutable takeaway: those who act decisively are more likely to emerge unscathed.

avcj.com

11 Mar 2020 Coronavirus and fundraising: Caught in a bind

The coronavirus outbreak has implications for PE fundraising well beyond China. Many Asia-based managers are either unable to go and see LPs or LPs are not permitted to visit them

“Every single AGM I had booked overseas in March and April has been canceled in the last week – full stop, canceled. But the bigger focus is looking through the underlying investees and figuring out what if any impact there might be under various scenarios, and obviously there is a wide band of scenarios depending on where you are and what kind of business you have. We are in constant dialogue, trying to figure it out in real-time, just like everyone else. There is a lot of work going on behind the scenes. We prepare for worst-case scenarios and hope for the best.”

Will MacAulay, an investment manager in HESTA’s private capital team, captured the mood among LPs at the recent AVCJ Australia & New Zealand Forum. His remarks also underscore how what was initially viewed as a China problem has escalated within the space of a few weeks into a global crisis, heightening the sense of uncertainty and fears of contagion.

As of March 9, there were more than 109,000 cases of coronavirus disease – COVID-19 – across 104 territories, with 3,809 lives lost, according to the World Health Organization. Set against the disruptive and destructive

power of this highly virulent virus, a slowdown in fundraising seems a rather innocuous byproduct, but the seizing up of private capital flows reflects broader challenges facing stakeholders in all economies as they try to keep the money moving.

Industry events are useful bellwethers of sentiment. Within Asia, they are often accompanied by annual general meetings (AGMs), fundraising roadshows and general catchups as local GPs take advantage of the fact that institutional investors are in town. And four weeks ago, China was uppermost in people’s minds. Could a mainland-based manager get an audience with an LP, even if he hadn’t been home in a fortnight? Would anyone be brave enough to attend due diligence meetings in China, even for hard-to-access funds?

As corporate protocols kicked in regarding who you could meet and where you could meet them, the answer to these two questions soon became self-evident. One placement agent disputed the notion that China fundraising had stopped, preferring to say it had slowed down, but added that what was already likely to be a challenging year would be truly brutal.

“We have LPs that refused to take any meetings in January and February,” the agent told AVCJ at the time. “We heard from one LP that they aren’t going to make any decision..."

by Tim Burroughs

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AVCJ Asia-Pacific COVID-19 Intelligence Highlights 14

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25 Mar 2020 Coronavirus & leverage: Room to maneuver?

Economic disruption caused by the coronavirus outbreak is likely to leave many private equity portfolio companies in breach of their leverage covenants. Borrowers and lenders are looking for a fix

Of the more than 400,000 foreign students enrolled in higher education courses in Australia, China accounts for above one-third. It remains to be seen how quickly they return to class.

International education is one of countless areas experiencing uncertainty and chaos as a result of the coronavirus outbreak. Australia, like many other nations, closed its borders to all apart from citizens and permanent residents last week. But the ban on international arrivals who have traveled from or through mainland China was introduced in February. Depending on how long the lockdown continues, educational institutions could be deprived of a key source of income.

Having contributed A$21 billion ($12.5 billion) to Australia’s GDP in 2018, and with nearly 25% of students from overseas, international higher education is big business. Disruption to this lucrative dynamic is already affecting private equity investors interested in the space. Laureate Education has yet to announce who will buy its Australian and New Zealand operation, despite PE and strategic bidders aggressively chasing the asset. With debt and equity markets suffering convulsions, the

buyers – and their financiers – might be waiting for the confusion to clear.

Questions are also being asked of another business, Navitas, which puts students into academic programs as a stepping stone to university enrolment. BGH Capital acquired Navitas for A$2.1 billion last year, supported by A$1.1 billion in debt. Is this structure robust enough to bear a drop-off in revenue without sliding into default? The message from a source close to the deal is unequivocal: “There is no – as in zero – chance Navitas breaches its only covenant for many, many years.”

Two weeks ago, leveraged finance professionals were still working on new deals for PE firms enjoying a prolonged period of ample liquidity. Now, sponsors and lenders alike are scouring the operational metrics and financial structures of existing portfolio companies for signs of weakness.

The speed of the decline has caught everyone off guard. In the past fortnight, the Credit Suisse leveraged loan index marked its three worst days on record in just a four-day window due to a large-scale sell-off across all industries and ratings. Yields in the high-yield markets increased by 676 basis points over the course of four weeks, a steeper sell-off in a shorter period than the euro zone and Brexit crises of 2011 and 2016. Even in the global financial crisis, it took 78 weeks for yields to peak.

“The market as a whole is taking a step back – it’s been fascinating because we’re in several live situations,” says Peter Graf, head of leveraged finance in Credit Suisse’s Asia Pacific financing group. “If you look back at the global financial crisis, it played out over 6-9 months and then it took down the globaleconomy after 12-18 months. Today, the speedof the sell-off has been so much faster and weneed more time to assess the full impact.”

Double wave

From a leveraged finance perspective, this impact will come in two waves: the first immediate as companies secure short-term liquidity; the second over the next three to nine months as the covenants attached to term loans that underpin LBOs undergo quarterly financial performance tests. The covenants in question are designed to capture whether a business can make interest payments on its debt and whether it can sustain operations under its current debt load and budgetary commitments.

Confidence in the Navitas structure likely stems from a high bar in terms of what the company must do to breach its covenant or wide scope in what it can do to make amends. It is one of few unitranche structures in the market that offer such flexibility. Covenant-lite deals that aren’t subject to these quarterly maintenance tests are equally rare. Four-fifths of the more than $50 billion raised by financial

sponsors for leveraged buyouts in Asia Pacific since 2015 come from the traditional bank market, according to Debtwire. Regular principal payments and multiple covenants come as standard.

Given the scale of the economic shock, covenant breaches are inevitable, it’s just a matter of when. Airlines, tourism, and hospitality have felt the initial pinch, but the impact of cutting off out-of-home consumption and curtailing supply chain activity will be widespread. Lenders are likely to give borrowers some leeway – based on a recognition that the crisis is macro in nature and pushing countless companies into bankruptcy would do more harm than good – but there will still be winners and losers,rebounds and restructurings.

by Tim Burroughs

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AVCJ Asia-Pacific COVID-19 Intelligence Highlights 15

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Gaurav Nayak

Debtwire keeps you updated on stressed/distressed and highly-levered credits, acquisition targets and financing, private financing, investments and exits, through a mix of deal stories, features, investigative reports, and credit analysis reports.

Debtwire Asia-Pacific COVID-19 Intelligence Highlights 16

Debtwire Intelligence

Introduction

With high yield bond yields jumping to 15%-30% levels, the Asian primary bond market has been at a standstill since the second week of March when the global markets started selling off in response to the coronavirus. As such, the amount of new high yield bonds issued in March nosedived 79.3% year-on-year to USD 2.35bn with no issues seen for the last two weeks of the month.

A surge of buying from Chinese investors towards the end of March provided relief for a much-beleaguered market, though there have been no signs yet that highly levered credits will be able to source funding via offshore bond issuance anytime soon.

As of 3 April, the JPMorgan Asia Credit Index for Corporate Non-investment index had fallen 11.15% since the start of the year, nearly wiping out the 12.72% gains made during calendar 2019. The average yield to maturity stood at 9.99% as of 3 April, with spread over treasuries at 948bps.

While the impact of the coronavirus can certainly be seen in the way prices for high yield has traded down to stressed/distressed levels, there have been few restructuring mandates to emerge from the crisis. One reason for this is that governments around the region are putting banks under pressure to exercise forbearance with some temporarily amending insolvency laws as well. Another reason for the relatively low numbers in new restructuring mandates is that companies that were already seeking large negative cash flows have been able to draw down fully on the unused portions of their loan facilities and standby letters of credit.

“The big wave of defaults will happen, but it’s not happening now,” said a restructuring lawyer. “A lot of these companies will run out of cash, so it’s just a matter of time.”

That’s not to say lawyers and financial advisors aren’t busy: a growing number of companies are seeking covenant waivers as borrowers seek to draw credit lines there are in some cases getting resistance from their lenders which could lead to a flow of litigation work. The same goes for disputes where borrowers are seeking injunctive relief against banks seeking to enforce margin calls.

A surge of buying from Chinese investors towards the end of March provided relief for a much-beleaguered market, though there have been no signs yet that highly levered credits will be able to source funding via offshore bond issuance anytime soon.

As of 3 April, the JPMorgan Asia Credit Index for Corporate Non-investment index had fallen 11.15% since the start of the year, nearly wiping out the 12.72% gains made during calendar 2019. The average yield to maturity stood at 9.99% as of 3 April, with spread over treasuries at 948bps.

While the impact of the coronavirus can certainly be seen in the way prices for high yield has traded down to stressed/distressed levels, there have been few restructuring mandates to emerge from the crisis.

One reason for this is that governments around the region are putting banks under pressure to exercise forbearance with some temporarily amending insolvency laws as well. Another reason for the relatively low numbers in new restructuring mandates is that companies that were already seeking large negative cash flows have been able to draw down fully on the unused portions of their loan facilities and standby letters of credit.

“The big wave of defaults will happen, but it’s not happening now,” said a restructuring lawyer. “A lot of these companies will run out of cash, so it’s just a matter of time.”

That’s not to say lawyers and financial advisors aren’t busy: a growing number of companies are seeking covenant waivers as borrowers seek to draw credit lines there are in some cases getting resistance from their lenders which could lead to a flow of litigation work. The same goes for disputes where borrowers are seeking injunctive relief against banks seeking to enforce margin calls.

A surge of buying from Chinese investors towards the end of March provided relief for a much-beleaguered market, though there have been no signs yet that highly levered credits will be able to source funding via offshore bond issuance anytime soon.

As of 3 April, the JPMorgan Asia Credit Index for Corporate Non-investment index had fallen 11.15% since the start of the year, nearly wiping out the 12.72% gains made during calendar 2019. The average yield to maturity stood at 9.99% as of 3 April, with spread over treasuries at 948bps.

While the impact of the coronavirus can certainly be seen in the way prices for high yield has traded down to stressed/distressed levels, there have been few restructuring mandates to emerge from the crisis.

One reason for this is that governments around the region are putting banks under pressure to exercise forbearance with some temporarily amending insolvency laws as well. Another reason for the relatively low numbers in new restructuring mandates is that companies that were already seeking large negative cash flows have been able to draw down fully on the unused portions of their loan facilities and standby letters of credit.

“The big wave of defaults will happen, but it’s not happening now,” said a restructuring lawyer. “A lot of these companies will run out of cash, so it’s just a matter of time.”

That’s not to say lawyers and financial advisors aren’t busy: a growing number of companies are seeking covenant waivers as borrowers seek to draw credit lines there are in some cases getting resistance from their lenders which could lead to a flow of litigation work. The same goes for disputes where borrowers are seeking injunctive relief against banks seeking to enforce margin calls.

debtwire.com

06 Feb 2020 Chinese HY developers downplay outbreak as manageable; bonds recover

Chinese high-yield bond-issuer developers are generally playing down the balance-sheet effects of the novel coronavirus as manageable, touting their fund raising shortly before the outbreak became public as sufficient to shore up their liquidity, said more than 10 buysiders.

Nonetheless, reflecting the severity of the situation, updates circulated to credit investor by at least 16 of the developers this week also forecast a large hit to 1Q20 presales, said the buysiders.

Supported by the generally constructive tone of the updates, high-yield USD bonds from the Chinese property sector have generally outperformed the overall high yield market since Monday, paring last week’s material mark-downs, said a dealer.

Double-B bonds from the sector were up 50bps-75bps so far this week, while higher-beta single-B paper gained 2-3 points while the rest of the market was approximately 25bps firmer, according to the dealer. Kaisa Group’s USD 300m, 11.95% due-2023s and USD 500m, 10.5% due-2025s gained 2.875 points so far this week, while China Evergrande Group’s USD 4.68bn, 8.75% due-2025s gained 2.5 points, the dealer said.

Shut down

The developers, in their updates the week, maintained that the main hit to their contracted sales was caused by their need to shut sales

centers to comply with government measures limiting face-to-face interactions, said the buysiders.

HSBC, in a 31 January research report, named KWG Group, Yanlord Land Group and Longfor Group as having the highest land-bank concentration areas covered by government restrictions on sales offices. The bank also named Shenzhen Investment, Logan and Country Garden have having the largest land-bank exposure to five most-affected provinces.

To cope, developers including Greenland Holdings, Logan Property, China Aoyuan Group, Jingrui Holdings, Fantasia Holdings Group, Modern Land (China), Ronshine China and Kaisa said that they will move to online sales platforms.

Some of the developers, including Jingrui, Kaisa and Zhenro Properties Group said in their respective updates that they concluded from stress tests and sensitivity analysis that they will be able to maintain healthy cash balances even if they had no pre-sales for three months, said the buysiders.

China’s delay in disclosing the outbreak in Wuhan until 20 January created a window for speculative-grade Chinese developers to sell USD 16.7bn bonds via 33 transactions in the three weeks from New Year, according to data compiled by Debtwire. In 2019, they sold USD 11bn across 26 deals in the four weeks between

New Years and Chinese New Year.

Central China Real Estate yesterday became the first developer to print following the announced outbreak, using a drive-by deal to avoid meeting investors face to face.

The Henan-based homebuilder, which priced its new 364-day, 6.875% bonds to yield 7%, told investors during the marking conference call yesterday morning that it expects its contracted sales to drop 10%-15% year-on-year because of the epidemic, said two of the buysiders.

Other developers so far have not quantified in their respective updates the expected impact from the outbreak on their contracted sales, said the buysiders.

HSBC, in a 31 January research report, set its base case scenario for 2020 PRC contracted sales growth to be 2%, down from 17% the bank previous forecasted. The revised base case was based on the bank’s assumptions that contracted sales decline in February would be 50% YoY and that the YoY decline would then progressively narrow by 10 percentage points before normalizing in July as the outbreak is contained.

“There must be impact on the near-term sales,” Shanghai-headquartered CIFI Holdings noted in its update, said the buysiders. “The impact on the medium and long term will depend on how the epidemic plays out and adjustments in government policy.”

Despite Guangdong being the second most affected province by the outbreak, Logan, which had over 80% of its land bank in the wealthy southern province’s core Greater Bay Area as of end-2019, still expects “stable growth” in its sales this year, the two buysiders said, citing the update sent out by the company.

Of the 16 developers, 14 specified in their respective updates that they will adopt a very conservative approach on cash management, said the buysiders. In line with that strategy, Greenland and Zhenro maintained that they will not participate in land auctions until the epidemic eases, whereas Logan, Jingrui, Ronshine and Kaisa said they will be very cautious in terms of land acquisitions. In the meantime, to help with liquidity, Greenland, Logan and Yango Group said they will focus on cash collection for earlier contracts.

Also tempering the effect of the outbreak on most high yield bond issuing developers is that Hubei is not an important market for them and Q1—punctuated by Chinese New Year—is usually a low sales season for the sector, Moody’s noted in a report on Tuesday (4 February).

“However, if disruption continues for the next three-to-six months, rated developers with weak liquidity and high refinancing needs, mostly rated at single-B category, would be more vulnerable,” the rating agency added.

by Terence Wong

Debtwire Asia-Pacific COVID-19 Intelligence Highlights 17

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25 Feb 2020 GCLNE hopes to get loan-maturity extensions using China’s support measures to lessen virus impact

GCL New Energy (GCLNE) hopes to obtain maturity extensions/rollover on an unspecified amount of loans before the next batch of asset sales to China Huaneng Group, making use of the government’s support measures for companies during the virus outbreak, said a company source and a market source.

China’s central and local governments are encouraging banks to provide liquidity support to small and medium-sized enterprises and privately owned companies, including by granting maturity extensions, interest-rate cuts and new credit lines.

The Hong Kong-listed solar-farm developer and operator expects the next batch of solar-farm sales to SOE power generator Huaneng to be reached after the government implements its new policy on renewable-energy subsidies announced in early February, said the company source.

The policy implementation -- now expected only in April-May because Beijing postponed its annual national meetings due to COVID-19 -- will help the companies reach agreements on the farms’ valuation, which is the main drag on the deal, said the company source.

Huaneng, during its November 2019 bond roadshow, stated it had nearly completed acquiring 2GW of solar farms from GCLNE. However, GCLNE only announced a 294MW capacity sale to Huaneng for CNY 1.08bn (USD

154m) on 22 January 2020. The sales will be in tranches, said the company source.

An around CNY 4bn bridge loan provided by Huaneng could also help GCLNE meet part of its near-term maturities, according to the company source.

Although the company has currently used up the entire bridge for debt repayments, under the loan terms, GCLNE could first pay down part of the loan with the proceeds of its CNY 1.08bn solar-farm sale to Huaneng and then redraw an equal amount, said the company source.

The one-year loan, provided by a trust unit of Huaneng, bears an annual interest rate of 10%, said the company source and a GCLNE bondholder.

Only around CNY 500m of the bridge was used to repay a shareholder loan from GCLNE’s 62.3%-owner GCL Poly Energy, said the holder. GCLNE had an outstanding USD 70m 8% loan due in November 2019 owed to GCL Poly, according to an 18 February 2019 GCL Poly announcement.

GCLNE and GCL Poly Energy jointly announced on 18 November that the parent’s originally planned sale of a 51% stake in GCLNE to Huaneng was scrapped and that GCLNE and the SOE entered into a cooperation framework agreement for a potential solar-farm transaction

Subsidies

Huaneng stated during its November 2019 bond roadshow that it plans to incorporate a discount in the GCLNE solar-farm purchase price to account for uncertainties over collecting GCLNE’s receivables from the government on renewables subsidies, as reported.

However, GCLNE management stated in conversations with credit investors that they hope to sell the solar farms at least at the book value - which is reflected in the valuation of its assets sold so far.

GCLNE reported CNY 8.8bn receivables in government subsidies at end-June 2019, of which only CNY 3.6bn was included in the current government-subsidy catalogues, according to its 1H19 results. In terms of capacity, only 33% of GCLNE’s capacity was included in the government subsidy catalogues as at end-June 2019.

Fitch noted in a 11 February release that the most significant part of the newly announced renewable-subsidy policies is “the expansion of subsidy coverage from projects constructed before March 2016 and included in the renewable subsidy catalogue to all operational and qualified ones.”

“The new policy requires subsidies to be distributed to all eligible projects on a pro-rata basis, which will benefit those with below-

average subsidy collection rates,” the rating agency noted.

GCLNE’s USD 500m 7.1% due-January 2021s were indicated at 65/68 today, according to a second holder.

Debtwire Asia-Pacific COVID-19 Intelligence Highlights 18

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Jessie Ma

03 Mar 2020Debtwire Par – APAC Chart of the Week: Asian HY bond issuance volumes fall 65.3% MoM to USD 7.64bn in February

Asian high-yield USD bond issuance volumes fell 65.3% month-over-month in February amid the continuing covid-19 concerns.

Issuers printed USD 7.64bn across 30 deals in February, compared with a massive USD 22bn from 53 deals in January. The February volumes were 30.8% lower than the USD 11.04bn via 30 deals recorded in February last year.

Chinese real-estate developers accounted for 74.9% of February volumes, while non-Chinese issuers contributed 16.4% and Chinese non-real estate corporates the remaining 8.7%. High-yield Chinese developers also accounted for a large chunk of January volumes with the government’s delay in disclosing the covid-19 outbreak in Wuhan until 20 January creating a window for them to sell USD 16.7bn bonds via 33 transactions in the three weeks from New Year.

In February, issuances outside of China were primarily from Indian non-bank financial companies: Muthoot Finance issued USD 550m due-2023 notes and India Infoline Finance printed USD 400m due-2023s.

HY bond issuances with less-than-a-year tenor by Chinese companies have surged in 1Q20-to-date amid the covid-19 outbreak. In February, USD 1.99bn bonds with tenors of 364-days or less were printed across sevendeals.

by Jason Huang-Jones

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Debtwire Asia-Pacific COVID-19 Intelligence Highlights 19

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06 Mar 2020 GATE parent UTAC expects to close sale to PE firm in end-July unaffected by COVID-19

UTAC Holdings, the parent of Global A&T Electronics (GATE), doesn’t expect the COVID-19 outbreak to affect its proposed sale to a global private-equity firm, and anticipates the deal to close before end-July, said two buysiders, citing management on a post-results call this morning.

During the 30-minute call, the company brushed off investor concerns that any interruption to the Singapore-based outsourced semiconductor assembly and test-services (OSAT) company GATE’s supply chain might cause the transaction to fall apart, said the buysiders.

“Unless we see a significant change to the supply chain and therefore our sales, [covid-19] should not have an impact in terms of the transaction,” UTAC CFO Ken Rizvi said during the call, according to the buysiders.

Affinity Equity Partners- and TPG Capital-controlled UTAC announced on 23 January that it signed an agreement with an undisclosed global private-equity firm, whereby the firm will become its majority shareholder. The company’s USD 665m 8.5% due-2023 senior secured notes are expected to be redeemed once the transaction closes, according to the announcement.

The notes were indicated at 97/99 today, said a dealer.

On the call, CFO Rizvi said the vast majority of

UTAC’s minority shareholders have opted to participate in the sale, said the buysiders.

While the extension of Chinese New Year holidays following the virus outbreak had an impact on the workforce at one of GATE’s production facilities in China, management expects the situation to improve in March and April, said the buysiders. The outbreak has had no major impact on its other facilities in Singapore, Malaysia and Taiwan.

UTAC this morning reported a 3.4% QoQ drop in 4Q19 adjusted EBITDA to USD 36.1m, on a 2% QoQ fall in revenue to USD 179.6m. During the quarter, the company experienced lower sales to its Japanese customers and to the mobile end-market, it stated.

As of end-December, the company had USD 191.8m cash and equivalents, against the outstanding due-2022 notes, its only debt.

GATE in early 2018 received a US bankruptcy court approval for its prepacked Chapter 11 plan through which it sought to restructure its original USD 1.13bn 10% senior secured notes. The confirmed plan distributes the USD 665m new secured notes and a 31% share of the company’s reorganized equity to its prepetition first-lien noteholders.

The plan was filed after years of legal battles stemming from the company’s controversial debt-conversion decision back in October 2013 - eight months after it first printed the

originally USD 625m 10% first-lien due-2019 notes. Under the plan, holders of its USD 543m due-2015 second-lien loan, which included GATE’s sponsor Affinity Equity Partners, were allowed to convert their junior claims into USD 502.257m due-2019s, as reported. The move materially diluted the underlying security pool.

During the Chapter 11 process, Kirkland & Ellis was legal counsel to GATE. Moelis was its financial advisor and Alvarez & Marsal was its restructuring advisor.

Milbank Tweed Hadley & McCloy was counsel to the first litigating ad hoc group of initial noteholders and PJT Partners was financial advisor to the group. Dechert was counsel to the 2017 litigating ad hoc group of initial noteholders. Ropes & Gray was counsel for the ad hoc group of additional noteholders, while Houlihan Lokey was their financial advisor.

by Terence Wong

Debtwire Asia-Pacific COVID-19 Intelligence Highlights 20

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1 It should be noted that they analysed the downside scenario as part of their going concern analysis under IFRS in connection with the audit of their annual financial statements and that they consider the downside scenario unlikely. So don’t panic. However, their assumptions and conclusions do make for interesting reading.

2 The recent Advantage Sales & Marketing bonds (which we understand have been postponed) mention coronavirus twice in the risk factors, but make no specific provision for it, or for disease outbreaks or public health crises generally, in the covenants.

13 Mar 2020 Wash Your Hands After Reading: The Coronavirus and itsPotential Impact on High Yield Bond and Leveraged LoanCovenants –CNI and EBITDA Adjustments

Debtwire APAC is republishing this report from sister product Xtract Research on the scope for interpreting bond and loan documentation to allow add-backs to reflect losses relating to COVID-19. While the report specifically cites examples from Europe and North America, the principles largely also apply to APAC corporate USD high yield bonds, even though they tend to have fewer aggressive consolidated net income and EBITDA add-backs.

By and large, the finance directors of highly leveraged companies are not a cheery lot, and the early indications of the potential financial implications of the coronavirus pandemic haven’t done much to put smiles on their faces. Indeed, in its preliminary results for 2019, Cineworld stated that under a specific downside scenario it performed, the equivalent of between two and three months’ total revenue could be lost, and in that scenario “there is a risk of breaching the Group’s financial covenants, unless a waiver agreement is reached with the required majority of lenders” 1 . We suspect that other companies are coming to similar conclusions. However, while we wouldn’t necessarily rank finance directors highly among the world’s optimists, they do tend to be pretty good at trying to make the best of bad situations. We weren’t entirely surprised, then, when we heard reports that some companies were looking at the

prospect of adjusting consolidated net income (CNI) and EBITDA for losses relating to the coronavirus pandemic in order to reduce the impact on their high yield bond and leveraged loan covenants. We aren’t talking here about new transactions that specifically mention coronavirus (among other things because we haven’t seen any yet),2 but rather about the scope for interpreting existing bond and loan documentation to permit a company to adjust for (sceptics might say ignore) the adverse impact of the pandemic on their business for purposes of the leverage and interest coverage ratios, among other provisions. In this regard, we’ve heard arguments for some adjustments that do seem reasonable, but we’ve also heard arguments for others that we think are wrong. We’ll try here to distinguish between the two. First Principles These being (we suspect) relatively early days in the global corona pandemic, the full impact of the virus on businesses has yet to make itself shown, but we can make a few relatively safe assumptions as to what some of these may be. Some businesses (airlines, cruise ships, cinemas, health clubs, etc.) will see a loss in revenues, as potential customers begin to avoid their services due to the perceived risk of catching the virus. Other businesses (car manufacturers, for example) may see a loss

in revenue because their supply chain has been disrupted due to supplier shutdowns and transport interruptions related to the virus, or they may experience increased costs as a result of having to change suppliers. Some costs may increase as a result of the virus (such as increased hygiene and cleaning costs, and increased overtime to cover for employees who are ill or quarantined) and some costs won’t increase but may not be able to be reduced in line with decreases in sales. All of this is relatively intuitive, but we mention it because it is important to remember that the impact of the pandemic on businesses will vary from company to company, and while a lot of businesses will likely see an impact on their bottom line, the impact won’t always make its way there in the same way. The second, but related, point we need to make is that it is difficult to speak generally about the pandemic’s impact across the bond and loan market, because the correct interpretation of whether an adjustment to CNI or EBITDA is permitted will depend very much on the precise language used, with small differences in how a definition is drafted having potentially significant differences in the outcome. While we’ll look at a number of typical provisions below, you really do need to look at each transaction individually.

CNI and EBITDA Adjustments

Before we consider what adjustments might be permissible, let’s first start by reviewing consolidated net income, EBITDA and their role in bond and loan covenants. Consolidated net income is, quite literally, the “bottom line” – the net result of a company’s financial performance over a period – revenues less costs and expenses, together with other gains and losses, on an after-tax basis. Or at least that’s what it is for accounting purposes. In bond and loan documentation, CNI is then subject to a number of adjustments, most of which (in theory at least) are to ensure comparability across accounting periods. These adjustments generally fall into two categories: non-cash items (such as the cumulative effect of a change in accounting principles and unrealized gain or loss due to currency fluctuations) and one-off or non-recurring items (such as gain or loss from discontinued operations and deferred financing costs written off in connection with the forgiveness of debt).

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25 Mar 2020 Vedanta’s EBITDA and credit quality will likely collapse without a swift recovery in commodity prices - Credit Report

Vedanta Resources Limited (VRL), a diversified metals and mining, power generation and oil & gas producer, is likely to experience a substantial credit profile deterioration in the coming 12-18 months because of the collapse in commodity prices. Just how bad things get will hinge on how long the coronavirus pandemic shuts down the global economy.

VRL is facing a dire operating environment, because the vast majority of its EBITDA is generated from the production of oil and zinc, both of which have been routed of late. Barring a rebound in the price of those commodities Debtwire projects that the company’s EBITDA could decline by around 50% in the next year, leading to skyrocketing leverage and potential cash flow issues.

With the medium-term outlook from the novel coronavirus outbreak still largely unknown and VRL already close to pressing against loan-covenant compliance levels, the refinancing or repayment of USD 1.5bn of term loan maturities due within the 12 months to March 2021 as well as the USD 670m bonds due in June 2021 at the VRL holdco level could become very onerous.

Amid the strong risk of collapsing EBITDA and refinancing challenges, the final ingredient for a perfect storm scenario is the liquidity needs

at the top-level holdco, Volcan Investments Ltd. The vehicle through which USD billionaire Anil Agarwal owns what is labeled the Vedanta Group (VRL, its 50.1% owned listed subsidiary Vedanta Limited (VEDL) and all of VEDL’s subsidiaries), has substantial cash needs in the coming 18 months.

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[1] Schedule 12 to the Coronavirus Economic Response Package Omnibus Bill 2020 (Cth)

[2] Explanatory Statement to the Bill.

[3] See Schedule 8 to the Bill.

25 Mar 2020Flattening the curve of insolvencies – Australia’s COVID-19 insolvent trading reforms

In a bid to avert an avalanche of insolvency filings, Australia’s Federal Government on Monday (23 March) enacted a range of temporary amendments to Australia’s corporate insolvency laws to address the challenges faced by directors during the COVID-19 crisis. [1]

In short, the chief reforms involve:

1. a relaxation of Australia’s strict insolventtrading laws to relieve directors from the risk ofpersonal liability in respect of debts incurredin the ordinary course of business over thecoming six months; and

2. amendments to the statutory demandprocedure to provide businesses withincreased protection from creditors.

The reforms have been welcomed by the Australian Institute of Corporate Directors and other stakeholders who were concerned that the existing safe harbour protections introduced in September 2017 didn’t provide directors sufficient protection in the circumstances that have emerged since COVID-19 hit. All of a sudden, many companies have found themselves without sufficient cash flows to service liabilities coming due, which normally under Australia’s insolvency laws would force directors to file for administration if only to avoid the risk of being found personally liable and potential subject to imprisonment for allowing their company to trade whilst insolvent.

While there remain concerns that the reforms will simply push credit risk down to suppliers and result in a further tightening of credit, for now, investors in Asia can take comfort that any directors appointed over Australian corporates – and any potential shadow directors – will have a longer window to determine an appropriate response to the current challenges.

Buying more time – insolvent trading and statutory demand relief

The Australian government has implemented two key amendments.

First, for the next six months, directors will be relieved of any potential liability for insolvent trading under section 588G of the Corporations Act (Cth) in respect of any debts incurred in the ordinary course of business. And given the objective of the amendments, this protection will likely extend beyond typical day-to-day transactions, to cover any debts incurred to facilitate the continuation of a business, such as finance obtained to move a business online or to continue paying employees. [2]

Some uncertainty remains, however, given that the reforms contemplate further statutory regulations being developed, potentially to restrict the application of the relief in certain circumstances. In addition, companies will remain liable for any debts incurred and any

egregious cases of dishonesty and fraud will remain subject to criminal penalties.

Second, companies will be granted greater protection from creditors seeking to recover debts through the statutory demand procedure. For the next six months, creditors will only be entitled to serve statutory demands in respect of debts above AUD 20,000 (an increase from the previous threshold of AUD 2,000) and debtors will be provided with an extended six-month window to respond to any statutory demands (up from the previous window of 21 days).

Importantly, however, there is no blanket protection from creditor enforcement. Creditors may still petition to wind up companies which are unable to pay their debts as they fall due, as well as on just and equitable grounds.

Ancillary reforms

In addition, the reforms to the insolvent trading prohibition and statutory demand procedure will be supplemented by:

• the federal Treasurer being granted a newpower to exempt classes of persons fromobligations under the Corporations Act, or tomodify any such obligations, where it wouldnot be reasonable to expect those peopleto comply with the provisions, or in orderto facilitate the continuation of business or

mitigate the economic impacts of COVID-19; [3]

• the Australian Taxation Office advising that itintends to work with businesses strugglingdue to COVID-19 and will consider taxdeferrals; and

• the personal bankruptcy regime beingamended in line with the corporate statutorydemand procedure by increasing thethreshold for a creditor to initiate bankruptcyproceedings against an individual fromAUD 5,000 to AUD 20,000 and providingdebtors with six months (rather than thecurrent 21 days) to respond to a bankruptcynotice.

The amendments will take effect after they receive royal assent, but will not have retrospective effect.

Ameliorating Australia’s strict insolvent trading regime

The government’s COVID-19 response was considered necessary to relax the strict duty placed upon directors of Australian companies to avoid trading while insolvent.

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27 Mar 2020China’s injection of COVID financing gives developers, LGFV, leading industrials immunity to offshore-market contagion

Property developers, local government financing vehicles (LGFV) and leading industrials are the Chinese sectors shown to have favored access to domestic debt as part of Beijing’s easing policies to counter the COVID-19 economic impact, said five international and three domestic bond investors, and five domestic debt bankers.

These easing policies in China—the first economy to suffer from a COVID-19 outbreak and already in recovery mode—will help its companies tide over the possible persistent dislocation in the international credit markets, said the 13 credit market sources. It will also likely limit the increase in defaults and bankruptcies in China, said three advisory sources, dampening expectations of a surge of mandates from the country.

China began rolling out the easing policies during the extended Chinese New Year holiday and they have already encouraged a strong flow of relatively low yielding domestic bond issuance from property and LGFV outfits, as per a tally from Wind, a financial data platform.

In the past six weeks, Chinese property companies issued 130 domestic bond tranches with aggregated principal of CNY 103bn, up from 72 tranches with CNY 71.8bn aggregated principal over the same period one year earlier, when the international bond market was hyperactive. Seemingly disregarding a severe fall in February pre-sales,

the average coupon for these recently issued domestic property bonds tightened to 4.12% compared to 5.28% for notes from the sector issued one year earlier, the tally shows.

Early this week, Shimao Property’s Shanghai Shimao Construction was able to print CNY 1.7bn five-year notes at 3.23% and CNY 2.8bn seven-year notes at 3.9%, as per a company disclosure. It needed to pay 4.3% for smaller five-year tranches printed in September and November 2019 and 4.8% for seven-year notes also issued in November.

To a significant but lesser extent, the domestically generally popular LGFVs have also been actively tapping the onshore bond market.

“As long as the company is offering many people a job, and has a functioning business in its industry, that would ensure it gets a hand from the government in a time like this,” said an international debt banker.

Ample liquidity

It has not just been the tradable debt market either. In fact, cheap bank rates encouraged regional state-owned-enterprises to favor the bank loan market, particularly for industrial players.

Indeed, Chongqing Energy Investment suspended its planned up-to CNY 1bn three-year private corporate bond offering even though it had provisionally attracted

CNY 680m anchor interest, said a company spokesperson. Instead, the Chongqing government-owned coal, gas and power supplier obtained a CNY 1.4bn “coronavirus loan” from three Chinee banks at a 2.95% interest rate early this month, he said. Including subsidies, the actual cost to the borrower is actually even lower, he said.

The loan is an example of China’s effort to fast-track low priced bank financing to virus-hit enterprises. The central bank set up a special CNY 300bn yuan low-cost refinancing program on 31 January, which People’s Bank Of China (PBoC) Monetary Policy Department head Sun Guofeng said during a 16 March press conference had enabled 4,708 virus-plagued enterprises to obtain a total CNY 182.1bn loans as of 13 March at an actual financing cost of 1.28%.

The Chinese central bank—the main policy locus so far for countering the economic impact from the outbreak —has also launched a series of other monetary easing policies, including cutting the bank reserve requirement ratio in January and March to release CNY 1.35trn liquidity and injecting CNY 1.7trn through open market operations in February. In addition, it has urged banks to extend loans and tolerate late debt payments from companies affected by the COVID-19 pandemic.

Commercial bank largesse, which normally flows largely to SOEs, has now flowed to others as well. Rated B/B- logistics-and-trade-center developer China South City Holdings announced obtaining CNY 2.6bn (USD 3.7bn) long-term secured loans from Chinese banks in February, mostly with 10-15-year tenors. Their interest rates are 5.5%-6%, as reported.

The plentiful domestic bank funding at a time that the offshore bond market is likely to remain closed to industrial names has encouraged oilfield-services company Hilong Holding and auto rental company Car Inc to both say during their respective recent investor briefings that they will use credit lines to repay offshore bonds coming due within the next 12 months instead of planning for an offshore issuance.

Hilong, which has USD 165m outstanding bonds due in June, said during its 12 March briefing that while the government requires domestic banks to increase liquidity “to real businesses”, better quality companies will benefit more from the policy, given that banks remain selective.

by Zhou Ping, Jane Jia, Gladdy Chu and Daisy Wu

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01 Apr 2020India’s first round of COVID-19 insolvency reforms aim to avoid a wave of new filings – COVID-19 Legal Impact

[Editor’s Note: In this new continuing series by the Debtwire Legal Team, Debtwire’s global team of restructuring lawyers and court reporters cover legislative and judicial efforts around the world to cope with the global pandemic in corporate restructurings.]

On 24 March 2020, the Indian government followed Australia’s lead and announced temporary amendments to its corporate insolvency regime to protect businesses during the COVID-19 crisis.

For now, the Indian reforms are less comprehensive than their Australian equivalent. Both governments have sought to curtail the ability of trade creditors to force companies into insolvency proceedings at a time when businesses are facing unprecedented financial stress due to the coronavirus and government-imposed lockdowns. The Indian reforms do not, however, go so far as to relieve directors from the risk of personal liability for wrongful trading in a bid to encourage them to restructure and continue trading through the crisis.

But while the first phase of India’s insolvency reforms are largely uncontroversial, the Indian government has signaled the introduction of quite drastic future reforms if conditions fail to improve. In particular, the government has suggested that all creditors, and even debtors, might be precluded from commencing resolution proceedings for a period of

six months. Yet such a move could prove problematic -- after all, who exactly benefits from forcing insolvent companies to continue trading? And if directors are prevented from handing the keys to a resolution professional -- no matter how bad a company’s financial plight is – what exactly should directors do?

In advance of any further reforms being implemented, the Indian government might need to give further thought as to how best to balance the need to protect temporarily stressed but otherwise viable businesses, while allowing hopelessly insolvent entities to meet their fate.

Phase 1 reform: higher thresholds imposed to commence resolution proceedings

On 24 March 2020, the Indian government announced that the threshold for commencing corporate insolvency resolution proceedings under the Insolvency and Bankruptcy Code will be dramatically increased from INR 100,000 (approx. USD 1,350) to INR 10m (approx. USD 132,000). The move is similar in nature to that recently adopted in Australia, where the threshold for serving statutory demands was increased from AUD 2,000 to AUD 20,000.

The aim of the reform is straightforward: to shield small and medium-sized businesses from a tide of claims from operational creditors, providing those businesses with more time to deal with the challenges posed by COVID-19 and the 21-day lockdown announced by the Indian government on 25 March 2020.

Resolution timelines also extended

In addition, on 29 March 2020, the Insolvency and Bankruptcy Board of India took steps to reduce the impact of the government-imposed lockdown on existing resolution processes by excluding the mandatory lockdown period from the timelines applicable to resolution processes under the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations (2016).

The move will excuse creditors and resolution professionals from compliance with the Regulation’s model timeline for completion of a resolution process, providing stakeholders with additional time to (inter alia) submit and verify claims, prepare an information memorandum, invite expressions of interest and consider and approve resolution plans.

But the mandatory 330-day time limit remains in place

Importantly, however, the move by the IBBI does not automatically relieve stakeholders of the need to comply with the strict obligation under the Code to complete a resolution process within a maximum of 330 days.

Unless future reforms provide such relief, resolution professionals will need to seek extensions to that deadline directly from the National Company Law Tribunal on a case-by-case basis. The NCLT likely retains a discretion to grant such an extension in exceptional circumstances – such as where government-

imposed lockdowns significantly interfere with progress – in light of the Supreme Court’s decision in Essar.

Phase 2 reforms might be more drastic

None of these phase one reforms are too controversial, but indications are that future reforms will be more significant.

Already, the Indian government has suggested that a second round of reforms might involve the operation of sections 7, 9 and 10 of the Code being suspended for a period of six months if the COVID-19 situation has not improved by 30 April 2020. That would mean no financial creditors, operational creditors or debtors could commence resolution proceedings over that period, no matter the size of any default.

From a distance, such a course of action, while drastic, appears logical; asking all stakeholders to stand still during a crisis is often the first step toward finding a solution which benefits all. But it could cause more problems than it solves.

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PaRR makes sense of the evolving legal and regulatory landscape and points the way forward for legal professionals, corporates and investors.

PaRR Coronavirus Impact Coverage Highlights 26

PaRR Intelligence

Introduction

As economies worldwide reel from the fallout of COVID-19, PaRR has continued to deliver unrivaled insight into how regulators across the globe are handling the crisis. While the extent of the current crisis is unclear, there is no doubt that government agencies across the region will play a vital role in shaping Asia’s response to this unprecedented situation.

From updates on China’s most closely watched merger reviews to the new enforcement priorities of Asian antitrust regulators, PaRR keeps readers ahead of the curve in terms of the evolving risk landscape. Notable developments to watch include a surge in price gouging complaints over the sale of products such as surgical masks and hand sanitizers, while data protection regulators in Hong Kong, Singapore and the Philippines are also receiving numerous complaints related to the COVID-19 pandemic.

PaRR provides law firms, companies and investors with news, data and analysis in the areas of competition law, anti-corruption enforcement, data privacy, cybersecurity and sector-specific regulatory change. Below is a selection of our recent coronavirus-related coverage, highlighting how different government agencies are reacting and coping at this pivotal stage.

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24 Feb 2020 China’s local antitrust enforcers focus on price gouging amid coronavirus outbreak

• Facemasks, sanitizers under spotlight afterprice hikes

• Officials mobilized as part of widergovernment effort

Traditional antitrust enforcement at the local level across China has been forced to take a back seat as officials monitor the price of in-demand products such as facemasks and sanitizers amid the ongoing coronavirus (COVID-19) outbreak, several sources familiar with the matter told PaRR.

The State Administration for Market Regulation (SAMR) announced seven batches of administrative penalties for price gouging on 12 February by local AMRs in multiple provinces across the country. Most were imposed against local pharmacies and supermarkets for selling facemasks and other medical supplies significantly above their normal retail price.

China’s local Administrations for Market Regulation (local AMRs) generally run antitrust enforcement and price supervision activities from the same unit and these officials are now focused on the price of virus-related medical supplies along with other products related to daily life such as foodstuffs, said one source.

This means Anti-Monopoly Law (AML) and Anti-Unfair Competition Law (AUCL) related investigations—such as commercial bribery cases—have slowed down considerably or in

some cases suspended, the source added.

Staff mobilized

Some local AMR staff are also being mobilized as part of broader government campaign to tackle the outbreak, sources in Shenzhen, Shanghai, Jiangsu and Hangzhou told PaRR. Tasks include assisting local police to prevent crowds of people gathering in public, conducting body temperature checks in commercial areas and supervising the price of key medical supplies, the sources said.

Normal AMR operations in Hangzhou including company registrations have all been halted, a source said.

Zhangjiagang AMR, a city market regulator in Jiangsu province, has also suspended routine AUCL inspections, in part due to a sharp decrease in number of consumer complaints about unfair business practices during the epidemic, another source told PaRR. In addition, given many companies have just resumed production after an extended Chinese New Year shut down due to the virus outbreak, government officials are not keen to hamper their operations, the source added.

However, some local AMRs are continuing to pursue monopoly and competition cases. In addition to processing a large number of price related consumer complaints, Jiangsu provincial AMR and Beijing’s Xicheng and Fengtai district AMRs are still engaged in AML

and AUCL enforcement, agency sources said.

This may be due to the fact, according to one source familiar with the situation, that officials at Beijing’s Xicheng District AMR have not been mobilized to assist in the government’s campaign outside of the office.

Antimonopoly Bureau

SAMR’s Antimonopoly Bureau resumed work on 3 February and since price supervision is the responsibility of a different department, traditional antitrust enforcement at the central level such a merger control has not been affected greatly. However, the agency is not conducting any face-face meetings with companies or lawyers, according to a source familiar with the situation.

Merger filings are done through an online platform, via email or courier while communication is done by email or telephone, a competition lawyer told PaRR.

While policy work is being conducted as normal, new antitrust investigations are unexpected for now as officials are unlikely to conduct dawn raids at the moment, according to the source.

by Kimberly Jin and Lisha Zhou in Shanghai and Qianwen Lu in Beijing

PaRR Asia-Pacific COVID-19 Intelligence Highlights 27

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09 March 2020 Asia Desk: Competition agencies face barrage of consumer complaints as coronavirus prompts profiteering

With the outbreak of the novel coronavirus (COVID-19) prompting price increases of personal hygiene products like masks and hand sanitizers, complaints about price gauging are pouring in across Asia. But the question is whether this is a matter for competition agencies, or if — as many people contend — the surge in prices can be explained by the sudden excess demand and hoarding.

While prices have spiked on the back of panic buying and the irrational stockpiling of household necessities, some manufacturers of masks are cashing in on the surge in demand by jacking up prices. There is a fine line between legal profiting in a time of significant shortages and illegal profiteering by creating supply shortages through hoarding.

Though excessive pricing is prohibited under competition law in most jurisdictions, the difficulty in proving the conduct is anticompetitive results in few antitrust agencies taking enforcement actions. This is despite the fact that from a consumer point of view, excessive pricing -- like price-fixing -- affects individuals’ purchasing power.

Competition agencies across the region appear to have taken different positions on whether price gouging is an antitrust matter even as the UK’s Competition and Markets Authority (CMA) warned last week that it was monitoring sales and pricing practices during

the outbreak.

After a “thorough investigation,” and having summoned manufacturers and distributors, the Indonesia Competition Commission (ICC) found no anticompetitive conduct in the sale of face masks, stating on 4 March that none of the manufacturers it spoke with had hiked prices illegally or restricted supply.

Indonesia is facing a shortage of N95 masks, with prices having shot up almost four times in recent weeks. A box of 20 N95 masks is currently priced at IDR 1,500,000 (USD 109) as opposed to the pre-coronavirus price of IDR 400,000 (USD 29.1), according to media reports. The public believes that wearing N95 masks can prevent the spread of the virus, with N95 signifying masks which can block even the smallest particulates.

Indonesia is not alone, as its counterparts in Taiwan and Korea started to monitor possible collusion among mask manufacturers after they were flooded with consumer complaints.

While there have been no indications that the Taiwan Fair Trade Act has been contravened, the Taiwanese antitrust authority intends to ensure against any price collusion, Taiwan Fair Trade Commission Vice Chairman Shaw-jin Perng told Asia Desk. Since 31 January, the Taiwanese government has “expropriated all masks” and the Ministry of Economic Affairs is actively controlling mask supply in the region, he explained, adding with that, the TFTC can

also look if there is any producer or distributor intentionally hoarding masks.

On 22 January, the TFTC published a notice warning that any anticompetitive agreement to hoard or manipulate the price of masks will be severely punished and parties could be subject to criminal prosecution.

Meanwhile, to discourage market and price manipulation during the epidemic, the South Korean government has set up a joint task force consisting of the Ministry of Food and Drug Safety (MFDS), the Korea Fair Trade Commission (KFTC), the National Tax Service (NTS), as well as municipal and provincial health and safety offices, to monitor the market for possible hoarding of masks and hand sanitizers, as well as other household necessities. Effective 5 February, any individual found hoarding such products will face a maximum prison term of two years or a maximum fine of KRW 50m (USD 42,108). The law will be in place until 30 April. It is anticipated that the coronavirus will dissipate as temperatures warm with the approach of Spring.

Similarly Singapore, a region that felt the affects of the virus very soon after it appeared in China, has witnessed hundreds of complaints alleging overpricing of masks, thermometers and hand sanitizers. The Consumers Association of Singapore (Case) is closely working with the Ministry of Trade

and Industry (MIT) and the Competition and Consumer Commission of Singapore to monitor the situation.

Competition authorities in India and the Philippines on the other hand, are seen taking a passive approach, and perhaps rightly so. A former antitrust official from the Competition Commission of India (CCI) told this news service that temporary spikes in prices are not something any machinery of competition law can investigate given the time an investigation usually takes. He added that excessive pricing is not covered under India’s Competition Act.

Similarly the surge in prices of disposable masks remains outside the purview of the Philippine Competition Commission (PCC) as profiteering and hoarding fall under the Department of Trade and Industry (DTI). On the back of complaints of overpricing, the agency warned pharmacies and medical suppliers not to take advantage of the sudden spike in demand for surgical masks — at the risk of facing penalties. The government has however, increased the price ceiling for disposable masks given the rising costs of raw materials.

by Freny Patel, Leo Galuh, Joyce Chen and James Galvez

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13 Mar 2020 Shipowners send out SOS on new low-sulphur marine fuel limits due to pandemic

• Chinese shipowners seek temporary reliefuntil June

• Philippines expected to be 100% compliantby 2025

• IMO meetings deferred due to coronavirus

Shipowners in China have asked the State Council to lobby for the International Maritime Organisation’s sulphur emission limits of 0.5% to be “temporarily shelved” for several months, in response to the coronavirus, while many shipowners in Indonesia and the Philippines are sustaining 3.5% sulphur emission levels, according to four sources close to the situation.

Since the beginning of this calendar year, the International Maritime Organization’s (IMO) International Convention for the Prevention of Pollution from Ships (MARPOL Convention Annex VI) directive has been in force, ratified by over 90 countries including China, Indonesia and the Philippines. To reduce sulphur oxide (SOx) emissions from ships, the IMO directed the amount of sulphur in maritime fuel oil to be reduced to 0.50% m/m (mass by mass) from 3.5%.

Temporarily shelving the low sulphur emission norms was one of the many measures suggested by The China Shipowners Association to the State Council on 21 February to ease the burden on Chinese

shipping operators and help through the difficult patch, an association source told PaRR. While the association did not specify the number of months, the source suggested a freeze until the end of June, which is the timeline suggested for the other proposed measures. Other measures suggested by the association included reducing or exempting some relevant fees and providing shipping companies financing support, according to the source.

The proposed suggestion of temporarily suspending the low sulphur emission norms should be applied to carriers plying local waters as well as those sailing in internationally, the association source said. The State Council has yet to respond to the association’s request, he added.

Trident Alliance Chair Roger Strevens told PaRR that the coronavirus does not present any grounds for reversion to the old 3.50% sulphur standard. Strevens suggested that the cost and burdens associated with reimplementing the target sulphur emission level from 3.50% to 0.50% for a second time would likely prove unattractive to shipping companies.

An IMO spokesperson declined to comment on any specific countries. However, according to a letter dated 19 February, the IMO advised member states to be understanding and adopt close cooperation to overcome challenges

related to the implementation and enforcement of the relevant IMO instruments, given the severe public health challenges brought about by COVID-19, as the coronavirus is known. IMO member states which need to raise issues in relation to enforcement are expected to lodge formal registrations or notifications, and it is understood none have yet been lodged.

Meanwhile, the IMO announced on Thursday (12 March) its plans to defer meetings originally scheduled for the month of March and early April due to the outbreak making it difficult for delegates from member states to travel.

While China implemented the IMO 2020 Sulphur emission 0.5% standards as of 1 January 2020, Indonesia and the Philippines have yet to do so.

The Philippines’ Maritime Industry Authority (Marina) told PaRR in an email that at least 70% Philippine-flagged vessels plying overseas routes are compliant with IMO’s low sulphur fuel requirements and that domestic ships would continue to comply gradually. The Philippines has 119 overseas ships under its registry.

The authority went on to say that it has completed the roadmap, providing a transition plan for domestic shipowners to comply with IMO’s sulfur cap within the next five years. This phased approach has been developed with the help of the Philippine Department of Energy (DOE), shipping companies, oil

suppliers, and other concerned entities in the public and private sectors, it said. By 2025, 100% of all Philippine domestic ships will be fully compliant with IMO’s sulfur cap, it added, explaining that this approach aims to ease the cost impact of IMO 2020 on domestic shipping companies and give oil suppliers time to ensure sufficient supply of compliant fuel.

The DOE earlier told this news service that the Philippines has sufficient fuel supplies to comply with lower sulfur content standards.

An Indonesia-based shipping source told PaRR that his company continues using 3.5% sulphur fuel because the Ministry of Transportation has not given more detailed regulations on pricing of 0.5% emission fuel, which would have increased the sector’s costs by 10% to 20%.

PaRR previously reported that Indonesia intends to selectively implement IMO regulations as it needed “time to adjust,” citing the spokesperson of the Directorate General of Sea Transportation. He did not say how much time was required, but noted that all Indonesian-flagged vessels sailing within Indonesian waters can continue using fuel with 3.5% sulphur-content “until it runs out”.

by Freny Patel in Mumbai, James Konstantin Galvez in Manila, Lisha Zhou in Shanghai, Leo Galuh in Jakarta and Jeremy Fleming-Jones in Brussels

PaRR Asia-Pacific COVID-19 Intelligence Highlights 29

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20 Mar 2020 Asia Desk: SAMR’s review of complex deals not impacted by COVID-19

Asia Desk is a weekly column providing commentary on regulatory and policy developments across the region. The opinions expressed here are those of the writers only.

The review of complex mergers by China’s State Administration for Market Regulation (SAMR) has not been impacted by the coronavirus with several high profile tech deals proceeding well into remedy talks recently.

As reported by this news service, Mellanox/Nividia and Cypress/Infineon have all submitted remedies to SAMR and the agency is conducting “market tests” on the remedies. SAMR ordered a tight timeline to third parties to respond to the remedies as the agency hopes to wrap up deals as quickly as possible.

SAMR also confirmed in a press release last Friday that its Antimonopoly Bureau (AMB) received 37 merger filings since 3 February when the agency resumed work after the extended Chinese New Year holiday. It formally initiated 45 case reviews and closed 45 cases, with average closing of two cases per business day, which “greatly supported company M&A activity.”

Compared with the 48 cases unconditionally cleared in December 2019, the speed of clearances has not slowed so far this year. This service further found that SAMR only required two days after the public notice period to

clear the Hitachi Chemical/Showa Denko deal, ahead of other jurisdictions.

Difficult deals

During the height of the epidemic, the agency conditionally cleared Danaher’s proposed acquisition of General Electric’s (GE) biopharma business after eight months of in-depth review. The deal, along with the Aleris/Novelis deal which was conditionally cleared by SAMR in late December 2019, were viewed by China-based competition lawyers as “highly risky deals.”

The GE/Danaher deal has high concentrations - combined market shares up to 85% - in 10relevant products, out of the total 25 relevantproducts, according to the SAMR decision.The Aleris/Novelis deal was also said to haveencountered strong opposition from Chineseindustrial third parties including an industrialregulatory agency.

The aluminum merger will create an entity with a combined market share of 70%-75% in the aluminum automotive body sheet (ABS) inner plates market and with 75%-80% market share in the aluminum ABS outer plates segment. Following the deal, the main competitors would be reduced from five to four in the Chinese market for aluminum ABS inner plates and reduced from three to two in the aluminum ABS outer plates market.

Both deals have been refiled. The Aleris/

Novelis deal, with a duration of 16 months, was refiled twice after the deal was transferred from simple case to normal case procedure due to industry complaints.

However, SAMR did not use the full three stages of the new review term after the refiling. SAMR cleared the Aleris/Novelis deal in the first phase after the second refiling and cleared the GE/Danaher deal in the second phase after the first refiling.

The conditional clearance of these two difficult deals showed that even if a deal encounters strong opposition from industry or results in very high concentrations it can still win approval from SAMR as long as the parties come up with sufficient remedies.

SAMR could possibly ask the State Council to render a decision on a deal if industry opposition is significant and cannot be addressed by remedies.

New play on ‘hold separate’

SAMR still has several high profile tech deals in hand. In addition to the Mellanox and Cypress deals, Wabco/ZF, and Acacia/Cisco are ongoing.

According to this news service’s report, most deals have not raised major concerns and are on a normal track.

The Mellanox/Nvidia deal alone was refiled in February. Following the refiling, the companies

have submitted their remedies to SAMR, which launched market tests immediately. It seems there are still some issues that need to be further addressed. SAMR is mulling a hold separate remedy on this deal and has communicated this with the companies. The ball is now in the companies’ hands whether or not to agree to a hold separate remedy.

A hold separate remedy is normally imposed on horizontal mergers where structural remedies are necessary but companies may lose synergies if they agree to divest core businesses. In China’s merger review history, the AMB has imposed hold separate remedies in 10 cases, among which eight cases were horizontal. Only the Lucite International/Mitsubishi Rayon (cleared in April 2009) and the recent Zhejiang Garden Bio-Chemical High-Tech (ZGBH)/Royal DSM (cleared in October 2019) were horizontal deals that had some vertical elements.

However, in the Lucite/Mitsubishi deal, the hold separate was only imposed on the structural remedy target before completion of the divestment. Therefore, it appears well within reason. In the ZGBH/Royal DSM deal,

by Lisha Zhou

ContinuedRead the full story online

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23 Mar 2020 Asia Desk: Antitrust investigations in Asia Pacific caught in COVID-19 pandemic

Asia Desk is a weekly column providing commentary on regulatory and policy developments across the region. The opinions expressed here are those of the writers only.

Many Asian countries remain in lockdown mode on account of the pandemic, with the virus having a rippling effect on antitrust investigations and the merger review process in Hong Kong, India, Indonesia, Malaysia and the Philippines, where regulators are working with skeleton staff -- or from home.

With more and more businesses and governments adopting work from home (WFH) and home quarantine rules, decision-makers are often unavailable to sign off on regulatory submissions. Such challenges call for a greater degree of flexibility to minimize disruptions and understand the inevitability of delays.

Approval for mergers and acquisitions (M&A) in countries like the Philippines has come to a grinding halt as the competition authority announced last Monday (16 March) that it would not accept any merger review applications until 14 April or when the community quarantine is lifted. This will have a negative impact on deal closures and deal values, as well as the potential to “contemplate carve-outs” for parties to global deals requiring approval from the Philippines.

On the bright side, the Philippine Competition

Commission (PCC) has frozen the 30-day window within which companies had to submit merger filings once they signed definitive agreements. Parties will now have more time to file with the authority. Pre-notification consultation will continue, although responses will be over email or conference calls until normal operations resume.

In contrast, the Indian competition authority is working intensely to review mergers applications as the financial year comes to a close. M&A deals are fairly time-bound and often parties want to close transactions before the close of the financial year, which for India is 31 March. This explains why many parties have asked the Competition Commission of India (CCI) to process merger applications pertaining to domestic deals at the earliest.

While the CCI continues to accept and review merger filings, it has hinted to parties that they should defer non-urgent filings. In June 2017 the CCI did away with the 30-day deadline. Parties to a merger can wait until normal operations resume before filing with the authority since India too has declared a lockdown with the growing number of COVID-19 cases detected.

In the case of M&A deals where one aspect of the transaction pertains to jurisdictions outside India which are in total or partial shutdown mode, parties have requested more time to respond to queries raised by the CCI. This is

equally applicable to queries raised in ongoing antitrust investigations. With the Indian government having cancelled international visas, the scheduling of depositions and ongoing investigations have been affected. The authority has adjourned all matters listed for hearing until 31 March. Hence while the CCI is moving at full speed to review mergers, it has stopped investigating anticompetitive conduct in light of the coronavirus impeding day to day operations. This means the CCI will not likely be conducting dawn raids at the moment.

CCI Chairman Ashok Kumar Gupta told Asia Desk that while the situation is “dynamic”, things are currently normal in terms of functionality but “still evolving”. Last Thursday (19 March), the state ordered staggered working hours for central government employees and that they should work from home every alternate week in a move to contain the epidemic. This could, however, impact review timelines and parties to mergers can expect further delays.

The Malaysia Competition Commission (MyCC) has temporarily closed its office, with the COVID-19 outbreak having affected one of its staff and the recent Movement Restriction Order announced by the Prime Minister last week. While the authority has closed its office until 31 March, it continues to receive complaints with a few of its officers available on standby.

Hong Kong’s Competition Commission on Friday (20 March) announced it has commenced proceedings related to the prosecution of a text book cartel. The authority announced in February that it reduced the number of working hours and today (23 March) declared that its office has been temporarily closed until further notice. Its spokesperson previously told this news service that precautionary measures taken by the Commission to reduce the risk of spreading the virus has resulted in the need to delay some investigations.

The investigation of the Hong Kong Seaport Alliance has seen some delays. The Commission is now aiming to complete the investigation within the first half of 2020, said the spokesperson; while its Chief Executive Officer Brent Snyder previously told the Legislative Council that the agency expected to wrap its probe of the alliance in the first quarter.

It is business as usual in Taiwan and Indonesia — for the moment.

by Freny Patel, Joyce Chen, James Konstantin Galvez and Leo Galuh

ContinuedRead the full story online

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Dealreporter’s news and data covers mergers and acquisitions, special situations and Equity Capital Markets (ECM) in real time.

Dealreporter Asia-Pacific COVID-19 Intelligence Highlights 32

Dealreporter Intelligence

Introduction

Dramatically widening deal spreads, financing risk, aborted indicative offers, regulatory and administrative delays – the past month has seen M&A hit by the perfect storm.

The collapse of equity markets in Asia and globally, and continued uncertainty about the depth of the impending global recession has created huge uncertainty for all but the most strategic of acquirors.

Not since 2008 have dealmakers and investors poured over merger agreements to examine material adverse change (MAC) clauses to such an extent. One example is EQT Infrastructure’s NZD 7 per share offer for retirement village provider Metlifecare [NZX:MET, ASX:MEQ]. On 8 April the private equity firm pulled out of the agreed deal citing a breach of the MAC clause. Metlifecare responded saying that EQT does not have a lawful basis to terminate the deal.

Amidst all the uncertainty and inflated macro risks it is notable that spreads involving some definitively agreed deals have recovered in recent weeks. For example, having ballooned out to around 7% in mid-March, the deal spread for Showa Denko’s highly leveraged acquisition of Hitachi Chemical has narrowed right back to less than 0.5% as of early April. Meanwhile, China Oceanwide’s near four-year pursuit of Genworth Financial is also a case in point. The spread, unsurprisingly, remains volatile but our reports suggest it is mispriced.

There is no question that corporates and investors are suffering. But as our 3 April report on ASX listed emergence capital raise candidates shows, there is also a lot of opportunity in this market for bold liquidity providers and for the well informed hedge fund.

dealreporter.com

10 Mar 2020 Genworth suitor China Oceanwide continues to see value in deal, source says

China Oceanwide remains committed to closing its long-pending acquisition of Genworth Financial [NYSE:GNW] despite turmoil in global markets and other macro uncertainties, said a source familiar with the matter.

The Chinese investment group is well aware of the Richmond, Virginia-based insurer’s strength and weaknesses and has a clear roadmap to leverage the company’s expertise in long-term care insurance and to fast-track a rollout of this business in China and other emerging economies, the source said

Earlier this month, Genworth announced that it had reached an agreement in principle with China Oceanwide and the New York State Department of Financial Services for Genworth to commit an additional USD 100m to its New York domiciled insurance subsidiary as part of the regulator’s approval of the China Oceanwide deal.

The parties previously agreed in 2018 to inject USD 175m in additional capital to Genworth’s Delaware insurance subsidiary to secure clearance from that state.

Genworth and China Oceanwide said they are now providing additional information to Genworth’s other state regulators about the New York commitment. Genworth CEO Tom McInerney told investors in February that the companies are “acutely aware of the careful balance we need to strike to accommodate

each regulator, while also making the overall transaction fair and acceptable to all regulators and the stakeholders they represent.”

The transaction is also subject to clearance by China’s currency authority the State Administration of Foreign Exchange (SAFE). The status of the SAFE process could not be learned.

China Oceanwide and Genworth said in the 2 March announcement that they are aiming to close the deal by 31 March, the current end date for the repeatedly extended merger agreement.

Even with Genworth trading well below the USD 5.43 per share offer price, China Oceanwide is not looking to revise its bid, said the source. The companies first announced their deal in October 2016.

It would not make sense to consider re-pricing the deal given the parties have navigated so many challenging regulatory hurdles including the Committee on Foreign Investment in the US and China’s National Development and Reform Commission. Pricing and funding plans are part of the companies’ filings with regulators, the source explained.

China Oceanwide will fund the USD 2.7bn deal using its funding Plan B, said the source. This plan will see a mix of onshore funding and offshore funding, the source said. The company developed this plan as an alternative

to the original funding plan and filed it with state insurance regulators.

Since signing the deal in 2016, China Oceanwide has said it is interested in buying Genworth to bring long-term care insurance to China. The deal also aligns with China Oceanwide’s ongoing strategic transformation from a property investor to become a financial conglomerate.

As long as the strategic value remains, China Oceanwide Chairman Lu Zhiqiang is determined to implement the Genworth deal, according to the source.

The source said that Genworth’s mortgage insurance business in the US provides a stable cash flow due to the scarcity of its license. The company has been deleveraging and its long-term care business is scaling down, the source added.

Genworth and other long-term care insurers have faced large losses in recent years after policyholders used the insurance at higher rates than expected when policies were sold decades ago. As a result, regulators have pushed insurance holding companies to provide additional capital to their subsidiaries that underwrote long-term care policies. This lesson will benefit China Oceanwide in its efforts to design long-term care products for China, the source said.

Futhermore, the acquisition provides a rare opportunity for China Oceanwide to materially accelerate its strategic transformation. Going forward, a deal like Genworth is unlikely to be replicable in terms of executability considering the capital control measures China has imposed on outbound investments and a tougher US national security policy, the source said.

Had China Oceanwide wanted to get out of the deal, it could have walked away when the parties were working on securing clearance from CFIUS, the source said. China Oceanwide and Genworth agreed to extensive mitigation measures to secure approval in 2018.

The parties likewise agreed to sell Genworth’s stake in its valuable Canadian mortgage insurer Genworth MI Canada [TSX:MIC] in 2019 after Canadian authorities declined to move forward with clearing the original deal. Proceeds from the sale have helped Genworth reduce its debt.

Asked about risks connected to the global coronavirus outbreak, the source said this is unlikely to impact Genworth’s long-term care business. Low interest rates are more worrisome for insurers with annuity products, the source said, though Genworth has limited exposure to this product.

Genworth and China Oceanwide declined to comment.

by George Shen in Shanghai with additional reporting by Yiqin Shen in New York

Dealreporter Asia-Pacific COVID-19 Intelligence Highlights 33

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by Stephanie Hanna, Vivian Wong, and Derek L

02 Apr 2020 Asia Flash: ASX-listed COVID-19 capital market candidates with medium-term catalyst potential

Editors of this news service make deal, trend and pre-event observations based on public domain info and market chatter. This raw data is combined with proprietary insights and commentary to produce an exclusive report that offers insight, and short- and long-term actionable ideas. (No investment action should be taken without further investigation).

Short term balance sheet woes amongst Australian-listed companies are providing attractive investment opportunities for strategically minded entities.

A slew of ASX-listed companies have withdrawn earnings guidance in recent weeks as a result of uncertainties relating to the coronavirus pandemic that has resulted in the leading Australian stock indices falling 20% over the past month.

Stock price falls and earnings warnings are being followed by emergency capital raisings involving retail and institutional shareholders as well as placements to private equity firms.

Two notable recent capital raises have involved companies that are both highly exposed to the coronavirus pandemic but also credible takeover targets in the medium term.

Following respective year to date stock price declines of 78% and 82% and earnings guidance withdrawals, online travel business Webjet [ASX:WEB] and out of home advertising company oOh!Media [ASX:OML] have

announced raisings of AUD 346m and AUD 156m respectively.

These capital raises have seen Bain Capital take up to a 16% stake in Webjet and HMI Capital LLC (HMI) raise its stake potentially to 25% from 19% in oOh!Media and acquire a board seat. Both deals are subject to foreign investment approval.

At the beginning of the year both Webjet and oOh!Media were considered financially healthy companies in consolidating sectors and as such highly credible takeover targets.

On the heels of this activity, the Asia Flash selected certain technical and valuation indicators as well as unofficial and official news flow to identify similarly profiled companies that may see a short-term capital raising event followed by a medium-term corporate catalyst, such as a takeover.

Asia Flash looked for evidence of short term balance sheet distress by screening for share price drops, news flow around earnings guidance, low liquidity to short term debt, interest coverage, and cross referenced that with our lapsed deals database, rumoured takeover targets and companies in consolidating sectors.

The screening process generated the following names:

Oil Search [ASX:OSH]. Long rumoured a takeover target for Total [EPA:FP] or possibly

Exxon Mobil [NYSE:XOM] and courted by Woodside Petroleum [ASX:WPL], the PNG focused oil company has seen its shares fall more than 57% since the beginning of March due to oil price crisis. It has a 2.9x interest coverage ratio but slumping oil prices may deteriorate earnings further and hinder Oil Search’s ability to generate enough cash to meet its interest payments alongside short term obligations. UBS analysts have reportedly said the company may be forced to raise equity if the current lowly oil price environment persists.

Scentre Group [ASX:SCG]. The shopping mall operator under the Westfield brand in Australia and New Zealand has been put to severe financial test as stores are forced to shut down due to Covid-19 and renters are seeking rent relief. Scentre’s shares fell over 50% since the beginning of March and on 20 March it suspended its outlook for FY20 due to “market uncertainties”. The AFR has noted the company may have to sell assets or fundraise to shore up under unforeseeable market conditions. With its current assets representing 0.1x of its current liabilities and interest coverage of 1.6x, company liquidity looks tight with USD 900m of debt expiring in July. The group’s AGM will be held on 8 April.

National Storage Reit [ASX:NSR]. Until recently, the self-storage provider was subject to takeover interest from Public Storage [NYSE:PSA] and private equity players Warburg

Pincus and Gaw Capital. But NSR may also see market turmoil affect its liquidity and cash flows in the coming months due to higher delinquency rates on rent receivables. The company’s cash to short term debt ratio stands at 0.6x while its current liabilities are almost doubled that of current assets. Shares in NSR have dropped to AUD 1.62 from around AUD 2 since prior to official news of the recent bid interest.

Stockland [ASX:SGP]. The top tier diversified property developer which owns shopping centres, industrial parks and residential real estate is facing unprecedented challenges reflected by a 55% drop in its share price since the beginning of March. Stockland has withdrawn its FY20 guidance amid market uncertainties.

As of latest half year results ended 30 December 2019, the company has total debt of AUD 4.75bn against cash available of AUD 245m. The company has an interest coverage ratio of 3.04x which may deteriorate as income slumps. Its current assets only represent 0.36x of its current liabilities.

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