Moneyed groups know that opportunities to snap up cheap assets are present not just in the West but also in the East. 

If the US have financially troubled companies that moneyed groups are sniffing to buy on the cheap, here in Asia the same opportunities are cropping up because of the slowdown in economy, soaring inflation, high interest rates and difficult access to credit for refinancing that are straining corporate balance sheets. 

Investors are just waiting for the perfect time to pick up these Asian companies with distressed debts. 

Distressed debts are obligations of companies that are in default or highly likely to be. They carry enormous risk but with prospects of very high return since they are priced far below their real values.

Although default among companies in the region has been rare in the recent past, thanks to lessons learned from the financial crisis in 1997-1998, the present slow economic growth and sluggish capital markets add pressure on corporate balance sheets. Rising interest rates also make refinancing for highly leveraged companies harder.

Economists, during the last day of the forum titled "Restructuring Beyond the Subprime" organized by the Asian Development Bank, particularly pointed to troubled companies in Australia (in the Asia-Pacific) and China, whose asset valuations are most attractive. Among peers, China is also one of the most exposed to subprime-related securities issued by mortgage finance firms in the US.

Jim Mcknight, managing director and investment banking head of Asia-Pacific Restructuring Group of UBS, said that a number of Australian companies are saddled with too much debt and have difficulties refinancing them.

"They are overgeared with complex funding structures," he said.

In China, public asset management companies (AMCs) have been selling soured loans that accumulated prior to 1993 when state-owned banks had not written off or set aside provisions for bad debts.

These assets are expected to drop to distressed levels as $175 billion worth of bad loans in the banking system that are not held by AMCs could double in the next two years, increasing competition on disposal, according to Rocky Lee, head of Asian Venture Capital & Private Equity Practice.

Lee blamed the substantial increase on China's non-performing loans to cash flow problems of businesses, especially the exporters, who were hit by the financial turmoil in major trading partner US; increase in government interest rates in order to curb rising inflation; and fallout from companies that have misused borrowings to speculate in tumbling stock and property markets.

"These assets would be appealing to investors since sellers would be forced to lower their asking prices," he said in his presentation.

Hedge funds want to invest

Many global hedge fund managers that are still heavy on cash have been planning to invest in Asian distressed assets, according to Warren Loui, a lawyer at Los Angeles firm Mayer Brown, who is also an expert in debt restructuring.

"The size of overall distressed asset market is likely to increase rapidly..and interested parties are looking to invest in the most viable companies, those that can survive restructuring," he said.

Loui pointed out that distressed asset value in the west has also dropped to low levels due to the crisis but some still prefer to invest in Asia where fundamentals remain relatively good.

Economists believe that while Asia is most affected by the global turmoil, it also likely the first to rebound among emerging markets.

He cited as example ADM Capital, a Hong Kong-based asset manager which announced it would shell out $1 billion to purchase distressed debts in Asia, mainly in China, home to the world's largest pool of bad loans.

ADM Capital, which has nearly $2 billion worth of assets under management, was established during the regional financial crisis with the original objective of providing liquidity to firms that had gone bankrupt then.

Investors like ADM Capital are "necessary to prevent further distress" among companies operating in a challenging credit environment, noted UBS' Mcknight.

"The liquidity they provide will help insolvent companies to recover as they restructure their debts," he said.

Usually, these companies buy distressed debts in exchange for equity ownership in firms undergoing rehabilitation. The investments can generate handsome profits for the buyers when they convert or sell these after the restructured companies leave bankruptcy and become profitable again.

Those investing in China either purchase distressed assets directly from the state-run AMCs or form a joint venture with them to engage in acquiring cheap debts.

When to invest?

The question for distressed asset investors is when to start buying in earnest.

As of the moment, Mcknight said hedge funds focused on this type of investing have had some capital-raising activities, although what they raised largely remain parked.

This is because, he explained, buyers do not want to risk entering the market too early since prices may keep plunging. Some investors also think a lot of junk debts are still overpriced. 

"However, if you're late, you can miss out on the best deals," he said.

For the rest of year, and perhaps until 2009, the global financial market outlook will remain cautious, with market writedowns not nearing an end, noted Mcknight.

"Restoring credit confidence will take time, risks are still present," he said. "Liquidity and funding difficulties remain on continued deleveraging."

Mcknight urged financial players to promote "transparency" in the system.

"Until people know what's in the system, until there is full disclosure of borrower and lender issues especially in bank-to-bank activity, fear and mistrust among investors will continue."