China best AsiaPac place for mezzanine deals: AMCG

By Alison Tudor and Michael Smith

HONG KONG (Reuters) -Executives at alternative capital provider Asia Mezzanine Capital Group (AMCG) say China offers the best mezzanine finance opportunities in Asia Pacific, given the high proportion of fast-growing firms and low valuations.

However, even in China, competition from other providers of mezzanine -- a hybrid of debt and equity financing -- was increasing, they said.

Sandwiched between traditional debt and equity, mezzanine financing is debt capital that gives the lender rights to convert to an ownership or equity interest in the company.

"In China, the domestic banking system does not service the rapidly growing private sector very well," David Bussmann, a partner at AMCG, said at the Reuters Hedge Fund and Private Equity Summit in Hong Kong.

Mezzanine deals are still relatively new in Asia. Mezzanine financing volumes were US$2.7 billion last year, compared to US$52 million in 2005, according to figures provided by Dealogic, although a large number of privately negotiated transactions are not reflected in this data.

Global mezzanine volumes were US$33.8 billion in 2006, Dealogic said.

Bussmann said that in the United States, debt to EBITDA (earnings before interest, tax, depreciation and amortization) coverage ratios are heading north of six times for medium- to large buyouts. In China the debt ratio is about 1 to 3 times.

At the opposite end of the spectrum to China, within the Asia Pacific region, was Japan, he said.  Continued...