Jonathan Rogers, IFR Asia Senior Credit Analyst
Debt restructuring is alive and kicking (if that’s the right term) in Asia. And that should be a sobering thought for anyone enjoying the frenzy of new bond issues from the region.
But the game has changed over the years, from one which was dominated by stodgy, government-owned restructuring agencies in the wake of the 1997 Asian financial crisis to one in which private sector, profit-driven restructuring advisers hog the action. There’s no doubt that these advisers – many of which, like Rothschild or Macquarie, are discrete departments of big investment banks – see the business as a lucrative opportunity, and one that is growing. Restructuring is sexy.
That latter point was underlined with the recent appointment of global advisory firm FTI Consulting as restructuring advisers to troubled Indonesian shipping firm Berlian Laju Tanker – certainly the highest-profile mandate so far for New York-listed FTI.
FTI has not featured in any of the headline restructurings to emerge from Asia over the past 15 years or so, but it is ramping up in the region. It is rumoured to have recently paid a star regional restructuring expert a cool US$30m sign-up fee in return for his expertise, in a clear statement of intent. That kind of payday makes the brouhaha over Stephen Hester’s near £1m bonus as CEO of Royal Bank of Scotland seem rather overblown, and dwarfs the bonuses recently doled out in the world of Asian debt origination.
Compared to the typical debt capital markets banker, restructuring advisers are a different kettle of fish. Indeed, when you read FTI’s corporate profile and are told that the company is staffed by, among others, forensic accountants, political leaders, Nobel laureates and crisis communications specialists it begins to make the typical origination head’s job look rather common.
But there’s little doubt that both parties, while notionally serving the interests of investors in debt as well as its issuers, undoubtedly have issuers as their number one priority.
And that is why the recent invocation of the US’s Chapter 15 bankruptcy ruling in the case of the Arpeni Pratama restructuring might send shudders down the spine of holders of Berlian’s debt. Holders of Arpeni’s debt now have no recourse to legal action in the US courts, but must instead rely on suing in the reliably capricious Indonesian courts. A smart move on the part of Arpeni’s advisers, and one which no doubt helps explain why the company was able to recently barrack its creditors to complete a two-year-old restructuring at an 18 cents on the dollar settlement.
And the rather clever gents who came up with that strategy typify the modus operandi of the restructuring advisory firm, or rather its very identity. These companies operate in a byzantine world comprising intertwined nodes of bewildering complexity. It includes everything from the ancient political connection, to the eagle-eyed take on a mountain of accounts, the sharp legal masterstroke and the mastery of game theory that would sit well at the professional poker tables in Las Vegas.
They are also at home in the world of public relations, because a company’s reputation is crucial in the face of negative campaigning from the other side of the fence: from activist shareholders or irate creditors.
The bulk of the work they do concerns restructuring entities in the private sphere. But an ongoing restructuring in Kazakhstan involving BTA Bank, which is owned by the country’s sovereign wealth fund and has the Asian Development Bank as one its shareholders, illustrates the fact that debt workouts can mingle commerce with government and hinge on serving the interests of both in a single restructuring exercise.
BTA’s ongoing restructuring is its second in less than two years. The bank completed a multibillion dollar restructuring in August 2010, the result of which was the bank ending up 82% owned by Samruk-Kazyna, Kazakhstan’s sovereign wealth fund. The fund falls under the purview of the country’s colourful, newly re-elected president Nursultan Nazarbayev and has been a major beneficiary of the rush of foreign investment into the resource-rich country.
Undoubtedly, Nazarbayev would be rather upset if these funds were to start fleeing the country should a messy default of BTA’s US$8bn of debt occur and hence it will undoubtedly be in his interests to push buttons with regard to getting a debt restructuring adviser on board to address the immense complexity of the bank’s capital structure. This includes nuggets such as “recovery units” which comprise restructured debt from the original restructuring of 18 months ago.
As recently as January 26, the bank’s shareholders, as well as the sovereign wealth fund, voted against a restructuring of BTA’s debt – although BTA said soon after that vote that it hoped to form a steering committee to negotiate the terms of any workout. Surely it’s time for Asia’s restructuring wonks to look up the dialling code for Astana and get a slice of some lucrative action.
A ton of reputation is at stake, and in this case, the stakes are higher than they have ever been in an Asian debt restructuring. That should suit the game theory experts in the new, high-octane world of debt restructuring rather well.
