Asian investment bank with distressed focus sets up shop

Hong Kong-based boutique SC Lowy has been established by the former heads of Deutsche Bank's Asian Distressed Products Group. Targeted opportunities to include real estate.

SC Lowy, a Hong Kong-headquartered boutique investment bank set up to focus on distressed and illiquid investments in Asian markets, has opened for business.

Headed by Michel Lowy and Soo Cheon Lee, formerly co-heads of the Distressed Products Group for Asia Pacific at Deutsche Bank, the bank will focus on opportunities across the distressed debt spectrum in the key markets of Australia, Japan, Singapore, and Indonesia.

“A lot of opportunities [right now] are real estate-linked, whether you’re talking about developers, REITs, or mortage-backed securities,” Lowy told PEI Asia in an interview. “A lot have to do with LBOs – where they were very levered, where the company’s numbers are disappointing and they’re breaching covenants. That’s a very large portion of the market, especially in Australia.”

He also said the firm was engaged in conversations with some private equity firms across Asia about “providing an exit for equity” in deals “which are not necessarily going to plan”.

“[Where] the original game plan of selling to a trade buyer or listing the business is not going to be achievable in the near future, and the investment may be from a fund that is reaching the end of its life, we would also work to provide liquidity for private equity firms as well,” said Lowy.

Lowy said most of the LBO-originated debt opportunity in Asia was concentrated in Australia at the moment, where there are currently about 10 LBO deals that are “not necessarily distressed, but certainly stressed and trading”. Japan, he said, did not offer the same scope for distressed investments in terms of LBO debt at the moment.

“LBO deal flow is not really coming from Japan so far, because the lenders in Japan were typically Japanese. The major difference between the LBO space in Japan and Australia is that in LBO deals in Australia, you had a lot of foreign banks. It’s the foreign banks that have started selling assets,” he said.

Lowy anticipated that deal flow from LBOs, which he said accounts for around a quarter of the opportunities he sees in the market right now, would sustain for the time being. However, levels have come down from last year, he said, when there were periods where LBO debt accounted for around 50 percent of the deal flow he was seeing.

SC Lowy has been set up with a 14-strong team in Hong Kong. It plans to open an office in Tokyo to focus on non-performing loan acquisitions by the end of the year, and one in Australia in the near future.

Lowy, CEO of the new firm, has 14 years of experience in the global distressed market, 12 of which have been in Asia. In 1999, following a two-year stint at Cargill in Singapore, he founded and headed the Distressed Products Group for Asia Pacific at Deutsche Bank, where he was a managing director

Lee, CIO, has 11 years of experience in the Asian distressed market. He joined Deutsche Bank in 2000, where he became head of trading for the Distressed Products Group for Asia Pacific and a managing director.

Also joining from Deutsche Bank’s Distressed Product Group is SC Lowy’s chief operating officer, Chetan Baxi, who held the same role at the bank.

In addition, Jamie Tadelis, general counsel at the firm, joins from Abax Global Capital, where he was chief operating officer, general counsel and chief compliance officer.  Robert Lepsoe also joins as head of origination and special situations. Prior to this role he was head of emerging markets for Deutsche Bank Principal Investments.

The bank’s main clients will be large commercial banks, which will be a source of opportunities and products, said Lowy. Buyers for distressed debt products include large investment banks, which have made a lot of money from distressed assets over the last few years, hedge funds, and specialist private equity-style distressed funds.