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Singapore debt restructuring hurdle flagged by Pacific Andes
[HONG KONG] The decision by a fish distributor listed in Singapore to abandon local court proceedings and seek US bankruptcy protection shows the hurdles the city faces in its bid to become a global debt restructuring hub.
Pacific Andes Resources Development Ltd, which defaulted on a S$200 million note in January, filed last month in the US for protection against action by creditors. It did so after certain lenders filed to wind up the firm and its subsidiaries in Bermuda and the British Virgin Islands.
That followed a Singapore court's decision to only offer a moratorium preventing creditors from enforcing claims on assets in the city, but not elsewhere.
Singapore is positioning itself as a fundraising hub for Asia and its ambitions include grabbing a share of debt workouts as defaults rise globally. Indranee Rajah, senior minister of state for law, said in July that Singapore should be a global restructuring centre similar to New York and London, not just a venue for local reorganisations. But as slowing economic growth leads to more delinquencies, use of US bankruptcy protection is spreading.
"Singapore faces competition in its ambitions to be a restructuring hub given the US courts' entrenched position," said Damien Whitehead, a partner at White & Case LLP.
"The reason why Chapter 11 is very appealing is that it has a worldwide moratorium that puts the shutters down on any enforcement by any creditor worldwide."
Singapore is "already an established centre for regional restructurings" and filing bankruptcy proceedings in the US can complement work coordinated out of the city, the Ministry of Law said in an e-mailed response to questions.
It said a committee recognised that more could be done, including allowing local courts to grant "a moratorium with in personam worldwide effect to creditors within Singapore's jurisdiction, and to extend such moratoriums to related entities of a debtor."
The government in July broadly approved those recommendations and will propose legal amendments later this year, the ministry said.
The need for an improved restructuring framework is increasing after four defaults in the past 12 months. The amount of local bonds issuers must repay will jump to S$3.3 billion in the first quarter of next year and S$3.6 billion in the second quarter, up from S$1.9 billion in the current period, according to data compiled by Bloomberg. Singapore's economy contracted by an annualised 4.1 per cent during the third quarter from the previous three months, the trade ministry said in a report on Friday.
Jessie Ng, executive chairman of Pacific Andes, said in an e-mailed statement last week that banks' appointment of liquidators and wind-up orders left the company with no realistic option but to file for Chapter 11 protection.
"We would like to reassure Pacific Andes bondholders in Singapore that, against the background of a threatened and urgent liquidation, the Chapter 11 filings are overall beneficial to them," Ms Ng wrote, adding that bondholders will be part of a consensual and global restructuring process.
The company said that the banks were exploiting the Singapore court's findings that its moratorium applied only within the city.
Alvarez & Marsal Asia Ltd said that for Singapore to become a restructuring hub, it needs to ensure that companies have protection from creditors in other jurisdictions. The Chapter 11 process leaves the company in charge of the business "to a large extent" said Thomas Dillenseger, a Hong Kong-based senior director at the restructuring firm.
He said local creditors less familiar with the Chapter 11 process than US counterparts risk losing out. Bondholders in Singapore have also cited costs and familiarity as challenges.
"We have no legal representative for the US hearing at the moment," said Keith Kueh, 43, who said he owns S$250,000 of Pacific Andes bonds.
"Nothing is within our control now."
FTI Consulting Inc said that the Pacific Andes decision highlights the "limitations" of Singapore's existing laws.
"Should the law be changed in Singapore to enable companies to take advantage of the worldwide effect of Chapter 11-like moratorium provisions, they won't need to go to the US," said Nick Gronow, a Singapore-based senior managing director at FTI Consulting, a restructuring firm.
"That would be a game changer in the world of restructuring."