Private Credit in Asia: Beyond the Yield

Asia is often discussed as a single private-credit opportunity. It is not. The same headline yield can represent very different risks depending on the borrower, currency, jurisdiction and structure.

Private credit activity in Asia has been growing again, but the market remains relatively small and fragmented. The OECD estimates that transactions reached roughly USD 7.5 billion in 2025, up sharply from 2024 but still below half of the 2019 peak.

That combination — growth, fragmentation and uneven market development — is what makes the region interesting from a credit perspective.

For me, the starting point is simple: yield is the output, not the thesis.

The real question is whether the borrower can continue to service the debt when one or two assumptions move against it.

Start with cash flow, not leverage alone

Leverage matters, but the number is only useful if the earnings behind it are credible.

A borrower at 4.0x net leverage with recurring revenue, limited capex and good cash conversion can look very different from another borrower at the same leverage whose EBITDA is cyclical or heavily adjusted.

The same applies to coverage.

Cash Interest Coverage = EBITDA / Cash Interest Expense

and, where relevant,

DSCR = Cash Flow Available for Debt Service / Scheduled Debt Service

are useful because they force the analysis back to debt service capacity. But I would not look at either ratio in isolation.

A company can report healthy EBITDA while working capital, maintenance capex or taxes absorb most of the cash. A bullet structure can also show comfortable near-term coverage while leaving a large refinancing problem at maturity.

The more useful question is therefore: how much cash is genuinely left after the business has funded what it needs to keep operating?

That is the cash available to protect the lender.

Currency can rewrite the credit

This is one of the areas where Asian private credit becomes very different from a purely domestic developed-market loan.

Imagine a company generating most of its revenue in Indonesian rupiah but borrowing in US dollars.

Nothing has to go wrong operationally for the credit to weaken. If the local currency depreciates, the cost of servicing the same dollar debt rises in local-currency terms.

This is why the currency of the loan tells only part of the story. I would want to understand:

• the currency of revenues and operating costs;
• whether the borrower has a natural hedge;
• how much of interest and principal is financially hedged;
• whether the hedge remains economical under stress;
• and whether convertibility or capital controls could affect payments.

A higher dollar coupon can look attractive, but it does not compensate for a structural currency mismatch if the borrower ultimately earns cash in a weaker currency.

Floating rates cut both ways

Floating-rate credit creates another asymmetry.

When benchmark rates rise, the lender initially earns more. But the borrower also pays more.

That means a higher coupon can arrive at exactly the same time that the probability of default is increasing.

The relevant stress is not only “rates +200 bps”. It is what that increase does to interest coverage, free cash flow, covenant headroom and refinancing capacity.

The reverse matters too. If rates fall and credit conditions improve, a good borrower may refinance early. The lender gets the principal back, but now has to reinvest at potentially tighter spreads.

So the economics of a floating-rate loan depend not only on the coupon, but also on prepayment protection and expected duration.

Asia is not one credit market

The label “Asia” can hide more than it explains.

A Japanese corporate loan, an Indian mid-market financing and an Indonesian infrastructure facility can all sit in the same regional bucket while carrying very different combinations of business, currency, regulatory and recovery risk.

The IMF’s 2026 regional outlook highlighted how external shocks, energy prices and financial conditions can affect Asian economies differently. For a lender, those macro factors matter because they eventually reach the borrower through margins, currencies, funding costs and access to refinancing.

Country risk is therefore not a separate box to tick after the company analysis. It can amplify the same risks already present in the capital structure.

A trade shock can weaken revenue, pressure the currency and make refinancing more expensive at the same time.

That interaction matters more than any one risk in isolation.

Collateral is only useful if it can be realised

“Senior secured” is reassuring language, but it is not a recovery estimate.

The value of security depends on what the asset is worth in a downside scenario, where the lender ranks, how long enforcement takes and whether the collateral can actually be sold.

A low LTV can still produce a weak recovery if collateral values fall or enforcement is slow and expensive.

For cross-border loans, this becomes even more important because the loan agreement, security package and operating assets may sit under different legal systems.

This is why I think recovery analysis should begin before a default happens.

If the borrower fails, what value is really available to the lender after haircuts, competing claims and enforcement costs?

A simple stress test

A simplified example shows how quickly several moderate risks can combine.

Assume a borrower has USD 50 million of floating-rate debt, annual cash flow available for debt service of LCY 150 million, and scheduled annual debt service of USD 10 million. At an exchange rate of 10 local-currency units per dollar, debt service is LCY 100 million and DSCR is 1.50x.

Now layer the stresses.

Scenario	CFADS (LCY m)	Debt service (LCY m)	DSCR
Base case	150	100	1.50x
Currency depreciation	150	120	1.25x
Currency + operating stress	120	120	1.00x
Currency + operating + rate stress	120	132	0.91x

No single assumption looks catastrophic.

But once the currency weakens, cash flow falls by 20% and rates rise by 200 basis points, the borrower moves from comfortable coverage to a cash-flow shortfall.

That is the part of credit analysis I find most useful: not predicting one exact downside case, but understanding which combinations of variables break the structure.

An investment perspective

When I look at private credit, particularly across emerging or cross-border markets, I come back to three questions.

Can the borrower generate cash?
Not just EBITDA, but cash after working capital, maintenance capex and the costs required to keep the business running.

What can make that cash flow weaker?
Rates, currencies, regulation, trade, refinancing and the business cycle.

What protects the lender when the base case is wrong?
Seniority, collateral, covenants, liquidity, documentation and ultimately recovery value.

The headline yield matters only after those questions.

Private credit is attractive because the lender can negotiate structure and contractual protection. But the lender’s upside remains capped.

The real underwriting objective is therefore not to maximise promised return.

It is to make sure that the return still has a reasonable chance of being received when the environment becomes less favourable.