Companies across Asia-Pacific face a growing list of obstacles threatening their bottom lines. From macroeconomic uncertainties to the ripple effect from struggling Western economies, these businesses continue to be challenged as stress levels reach new highs across the region.
Examining the manifold reasons causing companies to fall into distress, as well as the sectors undergoing the most restructuring exercises, sponsors Deloitte Southeast Asia, Mayer Brown JSM, and Drew & Napier, in partnership with Debtwire, held a special panel event in Singapore today titled “Searching for the Trend”.
Following the Asian financial crisis in 1997-98, noticeable progress has been made with insolvency reform across Asia-Pacific. Signs of improvement to bankruptcy laws over the past decade have been prevalent. However, mounting debt among Asian companies, most recently tested by the financial crisis in 2008, shows that corporate insolvency should remain a top priority among business and political leaders.
This trend is especially true among shipping companies across the region as shipbuilders and freight operators scramble to renegotiate with creditors. The industry fell into distress as vessels ordered during a peak in the shipping market in 2007 began arriving in the wake of the global financial crisis in 2008. Indonesian PT Berlian Laju exemplified this trend: the company had accumulated US$1.9bn in debt from a massive expansion campaign to its fleet and operations prior to the global downturn. A deal was reached between the shipping company and creditors, averting what would have been one of the largest bankruptcies in Indonesia in recent years.
“Restructuring exercises like Berlian Laju and Arpeni show that cross jurisdictional restructuring plans can work effectively within the context of an Indonesian insolvency process if managed correctly and especially where the conditions are right,” says Sushil Nair, Co-Head of the Restructuring team at Drew & Napier LLC.
Increasingly, the US, UK and Singapore courts have been used for scheme or arrangements. This has been a generally positive development. In certain cases though, a Chapter 11 filing can have certain consequences for creditors as in Today Makes Tomorrow’s recent Chapter 11 filing.
According to Robert Schmitz, Managing Director, Debt Advisory & Restructuring Services, Deloitte Southeast Asia, “since the 1998 crisis, Asia’s bankruptcy laws and its judiciaries have been evolving – a very short space of time considering that US bankruptcy law has had a 225 year-life. The progress has been noticeable in this region; rule of law transforms with culture, legislation, treaties, training, practices and good precedents. At Deloitte, we have tried to make a contribution to the later three: training, practices and good precedents.”
As companies continue to fall into distress due to weakening commodity prices, uncertainties over US Federal policy and a rapid exit of international investors from emerging markets, special situations funds have begun to explore new opportunities in the region with increasing interest. This in turn is creating the need to re-examine the framework for restructurings across Asia.
“Asian companies seeking protection with an aim to restructure their affairs are increasingly using the U.S. Chapter 11 route, Vinashin demonstrates that schemes may challenge Chapter 11 as a global restructuring option,” says John Marsden, Partner and Firm Practice Leader in Restructuring, Bankruptcy and Insolvency at Mayer Brown JSM.
In the rest of Southeast Asia, special situations are also increasing with recent restructurings showing both the opportunities and problems of doing business in these jurisdictions.
“The applications of laws in Malaysia, Indonesian, Singapore and perhaps the Philippines have become more balanced in the past half-decade such that courts cannot be easily labeled as being either creditor or debtor friendly. Thailand has institutionalized insolvency practices such as “a Planner” that approximate Singapore’s judicial management. In contrast, Vietnam’s insolvency regime is largely untested,” Schmitz notes.
“Singapore is increasingly placing itself as a jurisdiction that can work concurrently and effectively with regional restructuring efforts,” says Nair.