O&M debt restructuring: beware backlash from divide & rule

DON'T be mistaken - silence at a noteholder briefing does not mean consent, says a Business Times reader on news coverage of Nam Cheong's first noteholders' dialogue in July.

Noteholders were quiet because there was nothing warranting a response. At least, that was according to the reader who identified himself as a Nam Cheong noteholder.

Nam Cheong has since disclosed further details of its debt restructuring plan at its second informal meeting with its noteholders. More accurately put, Nam Cheong had held a series of meetings in August with its noteholders who were organised into groups. Attendees were also made to sign non-disclosure agreements (NDAs) (see amendment note).

Signing of NDAs is not new at noteholders' meetings - Marco Polo Marine had done the same before disclosing its business plan and getting this stakeholder group on board a proposed deferment of notes principal repayment.

Proactive split

What is new is Nam Cheong has proactively split up holders of different tranches of notes before meeting them in smaller, organised groups. Ezion has applied the same modus operandi in its recent dialogue with noteholders.

This tweak has not gone unnoticed among noteholders nor the investor community at large. Speculation is rife whether the underlying intent of this move is "divide and rule" though the listed entities involved have justified their actions, citing among others, logistical concerns. Communicating with a single, large group of noteholders spanning diverse demographics can be a nightmare.

But it is also true that if this group of stakeholders that is considered as disadvantaged to senior lenders owing to their ranking as unsecured creditors, were to band together, they can be a formidable force.

With at least two large organised groups of noteholders standing in its way, Rickmers Maritime could not proceed with a debt restructuring plan backed by its bank lenders and eventually chose to liquidate its assets.

In this digital age, however, it remains unclear how far it will serve the purpose of any debt restructuring exercise by drawing physical divides within a key stakeholder group.

Blog approach

One Ezion noteholder has set up a blog (ezionnoteholders.wordpress.com) aiming to share information with fellow noteholders and pool expertise so as to negotiate for "a fair share of pie".

In a blog entry, the Ezion noteholder who confessed to have only attended the meeting for Series 004 note maturing in 2018, raised questions about the lower day rates that Ezion's liftboats have been contracted for compared to other owner-operators with similar assets.

In the Nam Cheong group, a noteholder has sought to gather strength in numbers by calling out on an online forum for noteholders to step forward. He was then trying in late July to pull together noteholders representing at least 25 per cent of notes issuances so as to press the notes trustee to issue a letter of demand on outstanding coupons and notes principals to the listed entity.

What is apparent in the messages put out by these two noteholders is that there exist individuals with decent understanding of their legal rights and who will research and interpret financial numbers laid out before them.

So make no mistake, noteholders are not going down without a fight for their own rights.

Several O&M entities such as Ezion have significant outstanding notes on their books. Any corporate workout seeking blessings under Singapore's revamped debt restructuring regime cannot proceed without winning approval from creditors representing the required 75 per cent quorum of overall debt value.

Divide and rule may not necessarily pan out as a good tactic. Instead, it could serve any debt restructuring exercise better if pertinent information is shared in an open, timely manner with noteholders and proactive engagement exists with opinion leaders in this stakeholder group.

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Amendment Note: An earlier version of this story suggested that the debt restructuring plans of Nam Cheong notes has yet to be disclosed. Nam Cheong has released its plans last Thurs evening.