Restructuring galore

THE Asian financial crisis in 1997-98 had wreaked havoc on Asian currencies and equities, including Malaysia. With both financial and corporate sectors in distress, banks had to be recapitalised and kept liquid by removing non-performing loans, while corporates underwent restructuring.

Locally, Danaharta and the Corporate Debt Restructuring Committee (CDRC) were created by the government to rescue and restructure several companies, which owned assets considered to be strategic.

One that grabbed attention was the restructuring of the now-defunct Renong group, which owned PLUS Expressways Bhd that operates the North-South Expressway (NSE) running the length of the Malaysian peninsula.

Renong was once controlled by Tan Sri Halim Saad until the government, via Khazanah Nasional Bhd, took over all its assets in 2001.

Renong, via its subsidiary United Engineers (M) Bhd or UEM, had built the NSE in the 1990s under the build-operate-transfer model with a helpful boost from the government, which extended it a contentious RM1.6bil soft loan. This was half of the total projected construction cost of RM3.2bil. Upon completion, PLUS was given the task to run and operate the asset as a profit-making entity and conferred the rights to collect toll.

Halim rode on this success to build a conglomerate spanning many ventures from telecommunications to banking. However, Renong also racked up debts of over RM20bil, which left it susceptible to the Asian financial crisis. The businessman was also saddled with a RM3.2bil put option he could not fulfil.

After several failed restructuring attempts, the government nationalised Renong, which was subsequently privatised, reorganised and renamed UEM World Bhd.

The CDRC debt-restructuring scheme involved the issuance of RM8.4bil of zero coupon bonds by PLUS. The agency said the debt restructuring represented a private sector solution without any financial support from the government.

Given Renong’s huge debt, the restructuring would also avoid putting the local banking sector under stress. While this may be true, the issue was how did the conglomerate chalk up that amount of debt to begin with?

Another big corporate that was not spared the onslaught of the 1997–98 financial crisis was the Lion Group.

The diversified group, which was the second-largest corporate debtor after Renong, undertook to restructure RM5.9bil of its total debt burden of just under RM10bil. Under the plan, Lion’s local and foreign creditor banks, which numbered more than 100, would be repaid with a combination of cash, shares and bonds. Although the restructuring was outside the purview of the CDRC, the group had initial input from the committee.

The diversified entity was flying high in the 1990s and had over-expanded too fast.

The group completed its restructuring in 2003, marking one of the last major corporate exercises of companies that had gotten into financial difficulty due to the financial crisis. Other major restructuring exercises completed with the help of the CDRC included Johor Corp, the Titan Group and United Merchant Group Bhd.

The few that that restructured outside the purview of the CDRC include Land & General Bhd and Metroplex Bhd.