Indonesia debt work on hold as poll nears

By Yoke Har Lee

Elections to establish Indonesia's post-Suharto-era Government are diverting attention from corporate debt restructuring necessary for the economy to recover.

Thailand, which started off on the same footing as Indonesia, has on the other hand made astounding progress in terms of bringing about an environment to pave the way for corporate resuscitation, Nicky Tan, veteran financial adviser at PricewaterhouseCoopers in Singapore, told the Business Herald.

"Because of the impending election [in Indonesia], there isn't that level of focus to get reform packages through as it would have been otherwise. The election is a distraction from the reforms," he said.

Mr Tan was a speaker at a two-day international insolvency conference held in Auckland this week.

He was hounded by the world media while acting as an investigator for the Singapore Government into the collapse of Barings Futures. Losses built up by its derivatives trader Nick Leeson led to the demise of Britain's Barings Plc.

Mr Tan was also involved initially in the restructuring of Thailand's Alphatec Electronics Plc. The $US375 million ($693 million) debt restructuring was approved by a Thai court last week and gained acceptance from 85 per cent of the company's 1200 creditors, including the largest creditor, the Krung Thai Bank Plc.

At its peak, Alphatec claimed to be the world's second-largest independent producer of semiconductors.

Debt restructuring was taking place at different pace in different parts of Asia, Mr Tan said. Both Thailand and Indonesia started from nowhere in terms of having the legal framework to push through corporate reforms.

While both Thailand and Indonesia have been under pressure from the International Monetary Fund to implement reforms as part of the conditions for financial aid, Thailand has sprinted ahead with the task.

"I think what they have achieved so far is astonishing. If you look at Thailand, things have happened very fast. Countries like the UK and Australia took hundreds of years to get their system to where they are today.

"To put things in perspective, Thailand only had two years and they have come a long way. Thailand is changing; how fast it can further change depends on how strong the Government is and how they push through these changes," he said.

Thailand's private-sector debt is estimated at more than $US50 billion ($92 billion).

Last April, the Government pushed through new regulations, allowing for the rehabilitation of ailing companies.

In Indonesia, where up to 75 per cent of the banking system's loans are non-performing, restructuring has been slow to materialise.

A recent Reuters article pointed out that Indonesia was in the grip of economic paralysis as restructuring of debts faced stalemate.

The article summed up the reform - particularly a new bankruptcy law introduced last August - as being a farce. It said hardly any companies had been declared bankrupt while bankruptcy suits had been thrown out on dubious legal grounds.

Mr Tan said Singapore, Malaysia and Hong Kong had arguably the best legal framework to undertake corporate debt restructuring.

"Thailand, as you can see from Alphatec, is moving in the right direction. If you have got one going, everybody will just copy the formula. I am quite hopeful for that [further restructuring]."

With Thailand, however, the absence of law allowing foreigners to own land would be an impediment to help correct the property market overhang, he said.

The restructuring going on in Asia also presented opportunities for New Zealand companies wishing to invest or take equity stakes in companies.

"It is a good time, prices are now cheap. Debtors are now more realistic about what they are going to ask."

Pictured: Nicky Tan. PICTURE / FOTOPRESS