MEMBER PROFILE

ADM Capital has been investing in the Asia Pacific region since 1998. Within the Asian private credit space, what strategies have proven most successful for you and where do you see the biggest opportunities going forward? 

Being flexible and patient, and agnostic about sectors and geography, has helped us capitalize on the changing opportunity set in the region. The Asia-Pacific region faces a substantial funding gap caused mainly by traditional lenders stepping back from smaller loans to mid-sized companies. Regulatory changes and risk management decisions have driven the retreat. We find there is no shortage of demand for capital, but risks can be opaque. This had led to a laser focus on downside protection and risk mitigation. Keeping a flexible and non-prescriptive approach to structures, collateral and covenants is key and has led to transactions and relationships that have been profitable to the firm, our investors and our borrowers across economic and political cycles.  We work with our borrowers to measure ESG progress biannually and often set sustainability targets for them. We also have a sustainability-linked line of credit in our funds which links commercials with achievements of ESG milestones.

You recently launched the ADM Capital Asia Climate-Smart Landscape Fund, which has received a USD100m guarantee from the US DFC. What is the strategy behind this fund? What is the role of private credit in land use transition in Asia?

The blended capital Asia Climate-Smart Landscape Fund (ACLF) is the first fund in the new ADM Capital Climate investment vertical. The investment team will focus on providing secured medium-term loans to SMEs in Indonesia’s food and farming and agro-forestry sectors. The aim is to generate substantial impact by targeting borrowers that will adopt better land use and supply chain practices, that ultimately result in reduced deforestation, fewer GHG emissions and better gender balance in the workplace. SME borrowers in these sectors have little access to capital and thus can produce huge gains in efficiencies via the partnership with the ACLF. The Fund will benefit from a 50% deal-by-deal loss sharing guaranty by the US DFC. As Indonesia has re-opened, the ACLF investment team has built a strong pipeline of transactions and expects a first close in Q3 2022. Overall, private credit is playing a large and growing part in emerging markets to help drive capital to underfunded sectors such as agriculture and renewable energy. The broadening of markets provides new opportunities to credit investors and can have a meaningful impact across the region.

In 2021, ADM Capital exited over USD230m of investments across markets including South Korea, Thailand, China and India. As a private credit investor, what is your typical path to exit and how do you generate returns?

In private credit, we appreciate that sometimes exits may be the most difficult part of a transaction. In our experience, transactions rarely follow “typical” paths and thus, prior to approving new loans, our investment committee insists on seeing and stressing several credible exit alternatives.  We structure loans to withstand changing market environments and draw deeply on past transactions and previous unforeseen events to ensure timely exits. In India, we have introduced some of our borrowers to banks, which, given the improvement in the companies’ credit profile following our loans, has enabled them to refinance their loan. In another instance, one of our borrowers, a Thai property developer, leveraged the crypto market to issue real estate-backed tokens to repay its loan. We have also worked with borrowers to de-leverage by selling off non-core assets. 

How is the conflict in Ukraine affecting energy markets and agricultural supply chains in Asia? How is ADM Capital assessing opportunities and managing current portfolio companies through these disruptions?

Several energy intensive countries have reverted to more coal-fueled options, others have speeded up the green transition, some continue to trade with Russia. Agri supply chains, thus far, have been less affected since many countries in the region are somewhat self-sufficient (e.g., India and China) or actively benefit from the disruption (Australia).

At ADM Capital, we found that the best approach to mitigating potential supply chain disruptions is to diversify. Some of our portfolio companies in the logistics space are doing well from a pricing standpoint but are exposed to the unpredictability of the logjam; others in the agri-related business benefit from the disruptions; others offer cross-border services and are not affected by supply chain disruptions, but suffered from lack of mobility caused by the pandemic in the last two years.

Supply chain disruptions also provide an opportunity for patient capital to invest in these companies knowing that the disruptions will not last forever. Furthermore, there are opportunities in the ongoing strategy to localize supply chains, as well as in identifying suppliers to the larger companies in specific sectors (climate smart sectors, logistics, agriculture) who typically suffer from lack of funding.