(Bloomberg) -- The restructuring process for an embattled Indonesian media company is putting the spotlight on the struggle private lenders can face in recouping their money from borrowers in the country.
PT Visi Media Asia, controlled by the giant Bakrie Group, came up with a new restructuring proposal Tuesday, under which it would delay final repayment of the principal owed to a group of private credit funds by as much as 30 years. But the private lenders aren’t included on a list of verified creditors in the court-supervised restructuring process, meaning they cannot take part in any discussions on a possible deal or vote the plan down.
The latest plan offered to the group of private lenders is significantly worse than that offered to other creditors who are included on the verified list. The proposal given to other creditors generally stipulates the debt will be repaid within 10 years, according to a document seen by Bloomberg.
The Visi Media case is far from the first of its kind in the country. There have been a number of instances where local courts have excluded bondholders and bank lenders from the verified creditor list during debt restructurings to ensure that companies’ proposals can be passed unopposed.
Such cases have laid bare the legal and regulatory obstacles creditors face in recouping their loans and credit lines to borrowers in Indonesia. They also serve as a reminder for private credit funds seeking to capitalize on the rapidly growing $1.7 trillion global private-credit market.
The group of private lenders in the Visi case includes Varde Partners Inc., Tor Investment Management, AB CarVal Investors LP, Arkkan Capital, Goldman Sachs Group Inc. and UBS Group AG, who together claim that they are owed $560 million including interest.
Visi Media Asia didn’t respond to an email request for comment.
Going to court in places like Indonesia can be challenging because when the borrower doesn’t want to pay, they have access to a lot of tools to frustrate the process, said Fiona Gray, a partner at law firm Linklaters in Singapore.
Earlier this year, Ares Management Corp. and Tor Investment won a Singaporean court ruling that found an Indonesian borrower in contempt over a $200 million private credit loan. Despite securing an arbitration ruling in Singapore to be repaid, the funds faced repeated lawsuits in Indonesia as the borrower sought to delay making the payments.
Given what appears to be relatively poor creditor protection in the country, private credit funds with exposure to the Indonesian market are making extra efforts to protect their interest.
Southeast Asia-focused private credit fund Indies Capital Partners sometimes requests potential lenders to use custodian agents for securities put up as collateral, or move onshore shares to an offshore special purpose vehicles, managing director Pram Kurniawan said.
“If we require three times coverage for the loan, we usually request them to shift ownership of at least 1.5 times of the coverage to us,” Kurniawan said. “We want to mitigate jurisdiction risks even before any documentation is signed by having the control of the collateral very early in the deal.”
Ares Management, in its lending decisions in emerging markets including Indonesia, seeks to partner with good borrowers that not only have a robust business but also strong governance and good integrity, partner Tobias Damek said. “To really be able to assess a borrower, it is very helpful to be ‘local’ and have a long history in the market.”
Many lenders also seek to make sure they have securities based offshore to avoid onshore legal issues.
“Offshore security is always going to be the “gold standard in structuring,” Linklaters’ Gray said. “There are examples of successful enforcement offshore where the underlying operating company is onshore in Indonesia.”
It’s also important to include robust covenants in the loan documentation, and put in place practical operational oversight, such as signatories on a bank account or perhaps even appoint a nominee director or observer to the board, she said.
Having put up legal safeguards, sometimes the best defense is to build up a solid relationship with potential borrowers.
“In places like Indonesia, even if there’s a default and even if you have security, sometimes you might still have to go through a court process in order to be able to enforce,” Gray said. “Sometimes your security operates more as a shield than a sword.”
--With assistance from Chien Mi Wong.
©2024 Bloomberg L.P.
