Distressed-asset buying –well established in the U.S., U.K. and Australia — is less common in South Africa, but that could change as Chinese investors develop an appetite for cheap companies there, according to a stakeholder.

South African companies that are in trouble but have good assets could attract Chinese bargain hunters, especially in areas of mining, natural resources, renewable energy, property, real estate, construction and engineering, according to Eric Levenstein. Levenstein is head of business rescue, insolvency and restructuring at Werksmans Attorneys. He attended recent meetings with venture capitalists in Hong Kong and Beijing, according to a report in MoneyWeb.

“It is a matter of time before we will see significant investments by Chinese investors in the distressed debt space and where good assets are going to be acquired at a significant discount,” Levenstein told MoneyWeb.

One such purchase involved Chinese company StarSat buying a stake in Top TV in 2013. StarSat is now operating as a digital satellite TV brand in the South African market.

“There is no doubt that more of these transactions will come to the fore in the coming
months, where we see Chinese investors taking up positions in the business rescue space,”
Levenstein said.

It’s difficult to know the size of the South African business rescue market and ideally, such companies are identified before they need rescuing, according to Levenstein.

South African banks are generally not prepared to pump more money into struggling companies. In the absence of distressed funds, financing usually has to come from existing shareholders or buyers.

Venture capitalists in South Africa have not yet woken up to these opportunities that are more risky, but also more rewarding, Levenstein said. “It is usually a cash-flow problem. Often the company itself is not a bad company at all.”

While there has been some talk in South Africa about putting together a distressed fund, there is a definite appetite among Chinese investors, Levenstein told MoneyWeb. “They have cash and are looking for investments in unsaturated markets like South Africa.”

Capital raised by distressed and restructuring funds in the U.S. increased 35 percent from 2012 to 2013 to $36.64 billion, MoneyWeb reports. In the U.S., Levenstein said abundant available distressed debt and robust private equity markets resulted in venture capital, private equity and hedge funds targeting distressed companies in an effort to secure investments.