Private Credit Solutions: A Closer Look at the Opportunity in Emerging Markets 2019 About EMPEA EMPEA’s Board of Directors EMPEA is the global industry association for private capital in Robert Petty (Chairman) emerging markets. An independent, non-profit organization, the Co-Founder, Clearwater Funds, Co-CEO & Co-CIO, Fiera Capital (Asia) association brings together 300+ firms—including institutional Nicolas Rohatyn (Vice Chair) investors, fund managers, and industry advisors—who manage CEO & CIO, The Rohatyn Group more than USD5 trillion in assets across 130 countries. EMPEA members share the organization’s belief that private capital can Mark Kenderdine-Davies (Secretary) deliver attractive long-term investment returns and promote General Counsel, CDC Group plc the sustainable growth of companies and economies. EMPEA Fernando Borges (Treasurer) supports its members globally through authoritative research and Managing Partner & Head of South American Buyouts, intelligence, conferences, networking, education, and advocacy. The Carlyle Group Runa Alam EMPEA Project Team Co-Founding Partner & CEO, Development Partners International Jeff Schlapinski, Senior Director, Research Torbjorn Caesar Senior Partner, Actis Luke Moderhack, Manager, Research Drew Guff Kevin Horvath, Manager, Research Managing Director & Founding Partner, Siguler Guff & Company LLC Sabrina Katz, Senior Research Analyst Maria Kozloski Global Head & CIO, Private Equity Funds, International Finance Lead Contributors Corporation Andrew Kuper Nadiya Auerbach, Managing Director, Auerbach Consulting Group Founder & CEO, LeapFrog Investments Michael Casey, Managing Director, Portico Advisers Tope Lawani Co-Founder & Managing Partner, Helios Investment Partners Guest Contributors Brian Lim Partner & Head of Asia and Emerging Markets, Pantheon Ventures Richard H. Frank, Jr., Senior Managing Director, Darby Franklin Templeton Piero Minardi Managing Director, Warburg Pincus Kanchan Jain, Managing Director and Head of India Credit, Baring Private Equity Asia Sanjay Nayar David Kornik, Partner, Vantage Capital Member & CEO, KKR India, KKR India Advisors Pvt. Ltd. Ming-Hau Lee, Director, Clearwater Capital Ziad Oueslati Founding Partner, AfricInvest George Monserrat, Managing Director, Latin America Private Markets, The Rohatyn Group Renuka Ramnath Founder, Managing Director, & CEO, Multiples Alternate Asset Robert Petty, Co-CEO and Co-CIO, Fiera Capital (Asia) Management Holger Rothenbusch, Managing Director, Debt and Infrastructure, Maninder Saluja CDC Group plc Partner & Co-Head, Emerging Markets Private Equity, Quilvest Group Paul Sanford, Chief Investment Officer, TriLinc Global Rebecca Xu Co-Founder & Managing Director, Asia Alternatives Management LLC Thomas Spring, Founding Partner, Syntaxis Capital Yichen Zhang Sylvia Suen, Director, Clearwater Capital Chairman & CEO, CITIC Capital Warren van der Merwe, Managing Partner, Vantage Capital Production Assistance Ben Pierce, Pierce Designers To learn more about EMPEA or to request a membership application, 2600 Virginia Avenue NW, Suite 500 | Washington, DC 20037-1905 USA please contact [email protected]. Phone: +1.202.333.8171 | Fax: +1.202.524.6130 | Web: empea.org Contents Acknowledgements ............................................................................................................................ 2 A Letter from EMPEA ......................................................................................................................... 3 An Introduction to Private Credit in Emerging Markets .................................................................. 5 Advancing Innovations in Emerging Market Debt Strategies: Insights from CDC Group plc......................7 Private Debt Transactions and Structures in Latin America: Insights from The Rohatyn Group ................ 11 The View from China: Insights from Clearwater Capital ........................................................................... 16 Global Institutional Investor Interest: A Positive Outlook .............................................................. 17 The View from India: Insights from Baring Private Equity Asia (BPEA) ...................................................... 22 The Case for Emerging Market Private Credit ................................................................................23 The View from Africa: Insights from Vantage Capital ............................................................................. 26 Delivering Impact at Scale: An Interview with TriLinc Global ..................................................................... 29 The View from Central and Eastern Europe: Insights from Syntaxis Capital ............................................ 31 The View from Latin America: Insights from Darby Franklin Templeton .................................................. 34 Concluding Remarks .........................................................................................................................35 Appendix: Sampling of Private Credit Firms Active in Emerging Markets ...................................36 © EMPEA 2019. All rights reserved. 1 Acknowledgements We would like to thank the following firms for providing key thought leadership, as well as the financial support necessary to complete this study. STRATEGIC PARTNERS We are also grateful for the generous support we received from EMPEA members and industry participants in producing this publication. In particular, we would like to thank the numerous fund managers active across the world that donated their time and participated in our recent survey on private credit investing. We would also like to thank the numerous global institutional investors who shared their insights with us. © EMPEA 2019. All rights reserved. EMPEA encourages and grants permission for the distribution and reproduction of copies of this work for non-commercial purposes. Such copies, in whatever form, must be unmodified, in their entirety, and include copyright notice and full attribution. Any adaptation, derivative work, or other modification requires prior written approval by EMPEA. Please contact [email protected] or call EMPEA at +1.202.333.8171 for more information or to obtain permissions. DISCLAIMER: This report is intended to provide an indication of industry activity based on the best information available from public and proprietary sources. EMPEA has taken measures to validate the information presented herein but cannot guarantee the ultimate accuracy or completeness of the data and information provided. EMPEA is not responsible for any decision made or action taken based on information drawn from this report. 2 Private Credit Solutions: A Closer Look at the Opportunity in Emerging Markets A Letter from EMPEA Dear Reader, EMPEA is pleased to share with you Private Credit Solutions: A of dealmakers active across the globe. Their insights on recent Closer Look at the Opportunity in Emerging Markets, an in-depth market developments, deal structuring, and working with study of the private credit investment landscape across emerging portfolio companies provide us with a cohesive overview of the and frontier economies. The report gathers the latest EMPEA data opportunity set and an appreciation for the nuances of each on overall industry activity while delving deeper into the details of strategy, be it direct lending, mezzanine, distressed debt, or what makes emerging market private credit qualitatively different special situations. from its counterpart in developed markets, as well as private equity in emerging markets. While the number of players and the amount of capital in the emerging market private credit space have grown, small and Since EMPEA’s previous Private Credit Solutions report (Mezzanine mid-sized businesses in developing countries still face significant Financing in Emerging Markets) was published in 2014, investor financing gaps. Meanwhile, rising debt levels and distress plague interest in private credit broadly defined has grown. Capital raised many larger corporates and infrastructure projects, which for private credit vehicles targeting emerging markets reached will require creative solutions and alternative forms of capital USD9.4 billion in 2018—the highest level recorded by EMPEA to resolve. Given these structural dynamics and the relative since the inception of our data program in 2006. Meanwhile, the advantages of private credit as a cash-yielding, non-dilutive share of global institutional investors surveyed by EMPEA who financing solution, we believe it holds immense promise for plan to begin investing or expand their investments in private investors and will play a significant role alongside private equity credit in emerging markets has increased from 24% in 2014 to and venture capital in investors’ emerging market portfolios 47% in 2018. The global search for yield is naturally a key factor going forward. in the rise of private credit, but investors are also turning to emerging market credit opportunities because of their favorable We hope you enjoy this report and are encouraged to further risk-return profiles, particularly vis-à-vis heightened competition explore the potential of private credit in emerging markets. Please and deteriorating protections for alternative lenders in North contact us with any feedback on this initiative—or with ideas for America and Western Europe. future in-depth reporting and analysis—at [email protected]. To get a better sense of how private credit transactions in Sincerely, emerging