Budget 2025: S$1 billion private credit fund will help high-growth companies bridge financing gaps

• Private Credit Growth Fund to provide more financing options for high-growth local enterprises
• Private credit market has gained traction globally
• However, few of these funds focus on Asia

SINGAPORE’S introduction of a S$1 billion Private Credit Growth Fund will help local enterprises seeking to raise capital – without borrowing from banks or selling equity – access a fast-growing source that is still nascent in Asia, market participants said.

Finance Minister Lawrence Wong announced the fund in his Budget speech on Tuesday (Feb 18), adding that it will “provide more financing options for high-growth local enterprises”.

Wong, who is also prime minister, noted that the private credit market has gained traction globally. However, few of these funds focus on Asia, and much less on Singapore-based enterprises.

Therefore, “local enterprises are not familiar with the emergence of private credit as a form of financing option”, Patrick Yeo, markets leader at PwC, told The Business Times. The setting up of the fund “will raise awareness and thereby provide additional financing options to local enterprises” – particularly those that might not be eligible for bank loans, improving their odds of survival, he added.

A relatively new asset class, private credit began as a source of liquidity when the global financial crisis of 2008 caused high-yield and syndicated loan markets to seize up. Global demand has been growing, as tighter regulations make it more onerous for banks to lend to companies.

Concurrently, managers and owners of small and mid-sized enterprises (SMEs) wary of the regulatory burden of a public listing, or wanting to avoid diluting their stakes, are turning to it.

The market for private credit has the potential to grow to some US$3 trillion in the decade to 2034, representing around 10 per cent of the US$37 trillion fixed income market, according to Bloomberg Intelligence.

The fund’s launch “underscores the critical role of alternative financing in an emerging new digital economy”, said Paul Ong, partner at InnoVen Capital South-east Asia, a regional venture debt platform.

Private credit can also be a source of “flexible capital”, as it can be customised to meet the borrower’s needs while taking into account the business’ anticipated cash flow profile, said Luke Pais, Asia-Pacific private equity leader at EY.

Borrowers would typically have to pay more for private credit compared with traditional bank debt, but it would be cheaper than equity, he added.

Still, Matthew Lovatt, business tax partner at Deloitte Singapore, said private credit could introduce competition in the debt capital markets, leading interest rates to fall. This would lower barriers to entry that “might enable startups and SMEs to access finance they would not otherwise have been able to obtain from banks”.

Observers said that the fund could be structured to have government support, for example, while having a commercial player to manage the fund.  

If so, the fund’s “combination of commercial expertise and governmental muscle is compelling”, said David Sandison, head of tax at Grant Thornton Singapore. On a broader level, it will create an opportunity to grow Singapore while spreading risk at the same time, he noted.

Minister for Trade and Industry Gan Kim Yong will announce more details at the Committee of Supply.