Restructuring Boom could Boost Asian Private Equity Dealflow

Private equity is likely to see a flood of new deals from Asia’s growing number of companies seeking capital to restructure as softening economies in many countries and ballooning corporate debt stunt businesses’ growth. At the same time, banks have become more cautious about lending, according to a report issued by AlixPartners.

Private equity topped other financial institutions including hedge funds, banks and sovereign wealth funds as the go-to provider of capital for restructuring last year, according to the turnaround specialist and consulting firm. Now, with private equity firms sitting on an ever-growing pile of unspent capital it’s likely they will be more aggressively tapped in the next year as company restructurings become more commonplace.

The anticipated rush of new deals to the private equity market should bring cheer to Asia’s general partners as they compete for new investments in a bid to deploy what a Bain & Co. report estimated at $138 billion of unspent capital as of last year.

Around 70% of professionals interviewed for the survey published by Alix, which include respondents from private equity, hedge fund, government, banking and law sectors said they expect corporate restructuring to rise this year. Companies in distress will be looking to address operational restructuring, debt or capital restructuring, or management and leadership changes.

China and India, two of Asia’s biggest markets, are likely to provide good investment opportunities. For China, companies are under financial pressure amid the country’s slowing economic growth, while in India a recently unstable government has hindered business.

“Despite the inherent turbulence, these drivers also create added incentive for companies to restructure proactively, before they become distressed,” said Alix.

For India, industries in distress include retail, specifically the services sector as financial conditions tightened; in China, companies in the automotive, real estate and pharmaceutical industries could be ripe pickings.

Recent private equity deals in Asia tied to restructuring include U.S. private equity firm KKR & Co.’s acquisition of the health-care unit of electronics giant Panasonic Corp. in a $1.67 billion sale last year.  Also, Netherlands-based financial services business ING NV divested its ING Life Insurance Korea unit to Korean fund manager MBK Partners for $1.6 billion.

Write to Sonja Cheung at sonja.cheung @wsj.com. Follow her on Twitter at @SonjaCheung