The shipping sector, traditionally flourishing on China’s status as the world’s largest exporter, has also shown signs of significant distress. Services ancillary to the sector, such as docking, warehousing and shipbuilding, have likewise been in decline. Shagang Shipping recently went into liquidation, while China Ocean Shipping Group (Cosco) and China Shipping Group are in the midst of a governmentmandated merger. Affected by the slowdown and oversupply, shipyards in China have been discounting containers for sale. Accounting for about half the world’s demand for commodities, China’s weakened appetite is rippling through other markets, particularly in Asia-Pacific markets such as Indonesia, Australia, and Mongolia, where China is a key purchaser. A protracted period of low demand for commodities is likely to spur industry consolidation and/or further mine shutdowns with companies turning towards cost control and operational efficiencies, making the commodities sector a continued focal point of potential restructurings in the year ahead. Macau: The wheel of fortune On top of the shocks being felt across various sectors, political pressure in China has put renewed focus on the government’s anticorruption campaign.

This exacerbates key-man risk throughout China and exacts further stress on various industries, as individuals cut back on lavish spending and government officials become more reluctant to approve ambitious development projects. Figure 5: Macau’s gaming revenue trends 60 US$ in billions 50 .7% 40 30 45.3 102 33.6 36.7 38.2 48.0 (39 .6% 44.1 41.1 ) 35.2 29.0 28.5 23.7 20 10 0 2H10 1H11 2H11 1H12 2H12 1H13 2H13 For twelve months ending Source: Bloomberg 1H14 2H14 1H15 2H15 Historically an enclave of the gaming industry, Macau has been hard-hit by both China’s deceleration in growth and the farreaching repercussions of China’s crackdown on corruption, as the flow of funds between Macau and mainland China is being subjected to much closer regulatory scrutiny. Money and visitors have been drying up as the casinos’ best customers – high net worth individuals who made their fortunes in property and commodities, high-flying government officials, top personnel from state-owned enterprises – have been vacating the gambling floors in an effort to forestall suspicions of money laundering. This has had a serious impact on casinos in Macau, which are experiencing an unprecedented decline in VIP revenues, putting pressure on their bottom lines and forcing many to reassess future expansion plans. For 2015, Macau’s gaming sector recorded US$29bn in gross gaming revenues, down 34%+ from 2014 (Figure 5). With the day of VIP high-rollers drawing to a possible close, the central government is encouraging the city to diversify and place greater emphasis on family-friendly tourism and leisure. In October 2015, Macau’s newest casino, Melco Crown’s Studio City, opened to a lukewarm reception with limited customer appetite for high stakes gambling, while Wynn has delayed the opening of its latest project.

Many Macau casino projects have been financed by USD bonds and certain issuers have had to seek covenant amendments to accommodate for the new reality. Outlook: A cold worsens and spreads As China’s economic uncertainties continue, the trend of growing distress is spreading in China and across the AsiaPacific region, leading to an increasing number of corporate defaults. Companies that have been relying on China’s economy as a key driver of their own growth are experiencing a slowdown in sales and earnings. Falling commodity prices and expectations of interest rate increases in the United States, on top of diminishing confidence in the abilities of emerging market corporates to repay their dollar denominated debts, have seen an outflow of foreign investment from China and developing markets.

Amid untenable levels of corporate debt, many companies – highlighted by the continued struggles in the shipping, commodities, and oil and gas sectors – will likely continue to face the ripple effect of the slowdown. Brandon Gale Director BGale@HL.com +65.6438.9659 HL.com Naveet McMahon Publisher, Mergermarket naveet.mcmahon@mergermarket.com +852.2158.9750 Houlihan Lokey is a trade name for Houlihan Lokey, Inc. and its subsidiaries and affiliates, which include: United States: Houlihan Lokey Capital, Inc., a SEC-registered broker-dealer and member of FINRA (www.finra.org) and SIPC (www.sipc.org) (investment banking services); Houlihan Lokey Financial Advisors, Inc. (financial advisory services); Houlihan Lokey Consulting, Inc.

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