Bloomberg: Get Ready to Hear More About Private Credit in Hong Kong

By Lorretta Chen and Filipe Pacheco

21 March 2024

Fashionably Late

Private credit has been all the rage on Wall Street for the past couple of years, so why haven’t we heard much about it in Hong Kong?

For one, that sort of funding is often used as a last resort for those who need to borrow money quickly — usually a private equity fund — to pay for something like an M&A, and there haven’t been many of those around here for the past couple of years. The value of such deals involving Hong Kong companies fell 10% last year, after tumbling 60% the previous year.

But who needs M&As when there are a lot of folk in Hong Kong who are saddled with debt, need large sums of money quickly, and are having a hard time borrowing from banks because of their poor financial situation. That’s especially the case nowadays with interest rates being high and the property market slogging through a multiyear slump.

So the stars appear to be aligning for private credit to finally be a thing in Hong Kong. For some, like Blue Mountain Bridge Capital founder and Chief Investment Officer Jenny Sun, it already is.

Sun, who spoke at Bloomberg’s inaugural China Credit Forum held at our Hong Kong office yesterday, said lending to some of the more distressed borrowers can easily yield annual returns of more than 15%.

Hong Kong is becoming the new China for high-yielding credit, according to Sun. China’s once vibrant high-yield debt market has gone quiet in the wake of huge property developers such as Evergrande and Country Garden defaulting on their debt.

It’s not just Sun saying this. My colleagues and I have been hearing with increasing frequency from sources that the private credit market is starting to gain traction in Hong Kong.

And if Wall Street’s experience is anything to go by, that growth could come fast. The size of the private credit market has gone from seemingly nowhere to $1.7 trillion in recent years, and is starting to rival more traditional forms of lending.

Sure, there are skeptics. After all, this is a loosely regulated, high-risk industry that’s drawn warnings of a dangerous bubble from the likes of UBS Chairman Colm Kelleher. Even our own award-winning columnist Shuli Ren wondered last week whether private credit’s boom years were over.

But why get hung up on the negatives? There is growing demand for private money. A popular gym chain in Hong Kong sought private credit funding a few months back when it was struggling to pay things like rent, according to some sources. So if gym owners use private credit, why not owners of serviced apartments, luxury villas, office buildings or logistic centers in Hong Kong?

Non-bank lending is so prevalent here that there’s an infamous proverb saying that for every $10 of collateral you’ve got, you’ll be able to borrow $9 and have to pay back $13 in three months.

That’s 15% monthly interest, or 180% a year — way more than what Blue Mountain’s Sun was raving about.

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Bloomberg: Get Ready to Hear More About Private Credit in Hong Kong