Oaktree Capital has opened an office in Sydney at a time when falling commodity prices and China’s economic slowdown are weighing on the economy Down Under, the distressed debt investment specialist said on Thursday.
Byron Beath will lead investment activities in the region, the Los Angeles-headquartered firm said in a statement.
The move follows Australia’s mining boom collapse in the face of falling commodity prices and rising costs, whucb has caused equity and debt financing via capital markets to virtually dry up.
Other specialist private equity firms and hedge funds have in recent years also spotted value in Australian miners, albeit to a limited degree.
Funds Senrigan, D. E. Shaw and Blackstone invested A$40 million in Sundance Resources back in 2013. In 2012 Spring Capital invested in Australian coal developer Stanmore Coal. Terracom, previously known as Guildford Coal, restructured its debt and received capital from Orchard Capital Partners in 2014.
Perhaps the reason there has not been more distressed debt investment is that there is little certainty of income in contrast to the consumer sector, where cash flows are more consistent and can be more easily valued.
Also there is less debt available to buy up in the mining sector compared with other sectors. Hence outstanding debt is limited relative to other sectors where they can get more leverage. Greenfield miners have no income stream to service debt financing, so banks are relatively reluctant to lend and firms have fallen back on selling equity.
On the plus side, Australia offers a clear bankruptcy code and route to recovery of capital for distressed debt investors, in contrast to China.
Beath joined Oaktree in 2016 to focus on investment opportunities in Australia and New Zealand. Prior to Oaktree, Beath spent 15 years with Macquarie, where he was most recently a director in the corporate and asset finance division.
"Opening an office in Sydney will better enable Oaktree to create and seize investment opportunities across Australia and New Zealand,” Beath said in the statement.
Having first established an Asia-Pacific presence in 1998, Oaktree continues to expand its footprint across the region, its Sydney location adding to offices in Beijing, Hong Kong, Seoul, Singapore, Shanghai, and Tokyo.
Oaktree had $97 billion in assets under management as of December 31.