Mid-size infra projects in APAC present private credit opportunity

Mid-sized infrastructure projects in the Asia-Pacific region present an opportunity for private credit fund managers, according to Muzinich & Co.

Andrew Tan, chief executive and head of private debt for Asia Pacific at the investment firm, said that the region urgently needs capital to upgrade its infrastructure.

While large-scale, high-profile infrastructure projects can easily access capital from established firms, the middle market – in the $25m (£19.2m) to $75m range – is underserved by lenders, Tan said.

“What you find with many small and medium-sized opportunities is that they are not quite complete or at full capacity,” Tan said. “Given the uncertainty around interest rates, it can be difficult to value the equity in a lot of situations. So, if a company is trying to raise equity to get to full capacity or completion, that comes with the risk of a dilution of capital. Anecdotally, we often hear this raised as a concern.

Read more: BlackRock: Infrastructure secondaries predicted to soar by 2027

“Our focus is to bridge the gap, providing senior-secured financing for last-mile situations. We also see opportunities where companies have assets that are already generating cashflows, but they are looking to increase capacity through capital expenditure or an acquisition. In such situations, we can come in as a mezzanine lender or provide unitranche debt.”

Tan added that the potential returns can be higher than those available in traditional infrastructure, as the deals are smaller and in a less crowded space.

Muzinich & Co announced the launch of a new infrastructure and real assets private debt strategy in partnership with Hong Kong’s Orion3 last month.

Private credit funds have increasingly been circling the infrastructure space for opportunities.

A whitepaper published earlier this year by Ares Management suggested that infrastructure debt could present a $1.5tn opportunity for private lenders over the next five years.