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Hedge fund plans distressed Asia credit fund as stress looms

Hong Kong

A HONG Kong-based hedge fund is planning to raise money for its first fund de-dicated to troubled Asia credit including stressed bonds, as the market for such notes has grown to US$60 billion.

"We plan to start fund-raising in a couple months' time and are looking for seed investors," said Darryl Flint, chief investment officer and founder of Double Haven Capital (Hong Kong), adding that the firm is targeting raising about US$250 million to US$500 million.

About US$60 billion of Asia-Pacific dollar bonds are currently yielding at least 1,000 basis points over US Treasuries, classifying them as stressed or distressed, according to Bloom-berg-compiled data. Such borrowers must repay US$12.8 billion of debt next year. Rising credit failures in China have made it harder for companies to refinance offshore, and those firms dominate the region's junk bond market. Hedge funds are looking to profit from that.

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"We see the biggest opportunity in stressed bonds, where you are playing around the fears surrounding refinancing risk," said Mr Flint, a veteran who has been investing in distressed credit since 1997 and been in Asia since 1993. "It's that fear of potential default you want to take advantage of."

Double Haven has previously launched funds that include distressed credit as a component, but it is looking to scale up investments now given the growing size of the market, according to Mr Flint.

He sees the opportunity to short-sell some high-yield bonds, and to buy securities that trade around 50 to 70 cents on the dollar that aren't in default but where liquidity fears have weighed on prices. The bond market is "under-researched" and there are gaps in both knowledge and market liquidity, said Mr Flint.

Recently, dollar bonds sold by Chinese state-owned conglomerates Tsinghua Unigroup Co and Peking University have dropped amid refinancing concerns. A lot of stressed borrowers are first time issuers whose investor relations capability is limited, said Mr Flint.

The stressed credit fund will also include a small part of Double Haven's private lending business, which looks at countries including China, Singapore and Indonesia, he added. BLOOMBERG