Varde Plans to Double Asia-Pacific Staff in Distressed-Debt Push

  • Co-investment chief Carstairs moved to Singapore this month
  • Japan, Singapore, Australia offer top investment opportunities

Varde Partners, the $12 billion U.S. buyout firm and distressed-debt investor, plans to double its Asia-Pacific staff in coming years as ballooning corporate debt offers investment opportunities, new regional head Ilfryn Carstairs said.

“What you have seen is a large accumulation of leverage in this region, which with patience and over a period of time, tends to lead to more opportunities for us,” Carstairs said in an interview in Singapore last week. “Some of those opportunities play through in areas like commodities and energy markets, certain real estate markets.”

With global interest rates near record lows, Asian companies have gone on a borrowing spree in recent years, creating opportunities for distressed-debt investors as some now struggle to meet repayments. Volatile oil prices and a shipping slump sparked a record number of corporate defaults in Singapore last year.

Carstairs, who was made co-chief investment officer in January before moving to Singapore from London earlier this month, said he’s looking to double the number of employees in the region from the current 30 over the next five years. The Minnesota-based firm has about 15 percent of its assets in Asia.

Japan, Singapore, Australia and New Zealand are the top markets to look at for distressed debt as they have the necessary legal framework to aid debt recovery, Carstairs said.

Legal Rights

“We always spend a lot of time thinking about not just where the distress is, but also where your ability as a creditor to recover and enforce creditors rights is strong,” he said. In those jurisdictions “they are quite straightforward in terms of creditors rights and thinking how you pursue the claim.”

In Singapore an unprecedented five companies defaulted on almost S$1 billion ($715 million) of bonds last year. Australia’s four biggest banks have A$10.3 billion ($7.8 billion) of non-performing loans, according to Bloomberg calculations based on the lenders’ latest filings.

Other markets with “pockets of distress” such as India, Indonesia and China aren’t “as simple to crack” because claims aren’t as easily enforceable, he said.

In India, “you have both a build-up of distress in the system, very well documented in the scope of the non-performing-loan problem there,” he said. “You have a lot of large corporates which appear to be overleveraged on the face of it. At the same time you have a growing economy with low penetration of credit in general.”

Staff will be added across all areas in Asia, Carstairs said. Apart from its Singapore regional headquarters, Varde has offices in Tokyo, Hong Kong and Sydney.

Lending Gap

The firm, which bought General Electric Co.’s consumer finance unit in Australia and New Zealand with KKR & Co. and Deutsche Bank AG for A$8.2 billion in 2015, is also looking to take advantage of a pullback in lending in certain areas by banks.

“Traditional lenders, because of regulation, because of increased capital requirements, are not just pulling back from lending to those spaces, but also saying ‘hey we want to sell the business infrastructure that we already own,”’ he said.

Carstairs, an Australian national, joined Varde in 2006 and was made partner in 2011, according to the firm’s website. He previously worked for Deutsche Bank in London in the Financial Sponsors Group, and Pacific Equity Partners Pty, an Australian buyout firm.

Founded in 1993, Varde has about 250 employees worldwide, focusing on corporate debt, specialty finance such as asset-backed securities, real estate, mortgages and transport and infrastructure, according to its website.

— With assistance by David Yong

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