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Rethinking dividend recaps

Asian lenders have often balked at dividend recaps. They should reconsider.

Dividend recapitalizations have never been very popular in Asia, a reflection of the region’s relatively small leveraged finance market and more conservative lenders. But as several firms owned by private equity groups plan deals, bank lenders will be forced to take a stance on the structure.

Private equity firms typically use dividend recaps after acquiring a controlling stake in a company. The private equity firm wants to realize a return on its investment but doesn’t necessarily want to sell shares, which would reduce its stake. Instead, the PE firm encourages executives at the newly acquired company to take on new debt in order to pay a dividend.

Although this financing can be done through bonds, the majority of dividend recaps in Asia have been financed in the loan market. The notable exception was a $500 million bond for Indian IT company Mphasis, part of which was used to pay a dividend to shareholders including Blackstone and GIC, Singapore’s sovereign wealth fund.

Until March, there had been only 10 dividend recaps in Asia, according to Dealogic data sourced by GlobalCapital, Asiamoney’s sister publication. The last high-profile deal was in 2018, when shoemaker Belle International syndicated a HK$30 billion ($3.9 billion) loan, part of which was used to make a divided payment.


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