ASIAN DEVELOPMENT BANK

REGIONAL TECHNICAL ASSISTANCE

TA NO: 5795-REG

INSOLVENCY LAW REFORM

CASE STUDY FROM MALAYSIA

Rabindra Nathan Shearn Delamore & Co

THE CASE OF RENONG BERHAD AND UNITED ENGINEERS MALAYSIA BERHAD UNDER THE AUSPICES OF THE MALAYSIAN CORPORATE DEBT RESTRUCTURING COMMITTEE

The restructuring of the Renong Berhad ("Renong") and United Engineers (Malaysia) Berhad ("UEM"), both public listed companies under the same stable, was conducted under the auspices of the CDRC.

STRATEGIC IMPORTANCE

RENONG BERHAD

Asset Ownership in Malaysian listed companies in key economic sectors

· 37.1% holding in United Engineers Malaysia Berhad (see below)
· 18.3% holding in Commerce Asset-Holding (holding company of financial institutions)
· 60% holding in Faber Berhad (hotel, property, healthcare and transport)
· 46.8% holding in Time Engineering Berhad (telecommunications, media and engineering)
· 50.1% of Park May Berhad (Public bus transportation services)

Ownership of unlisted key infrastructure entities

· 100% of PUTRA (Kuala Lumpur's light rail transit system)
· 64% of PROLINK (infrastructure for Bandar Nusajaya, adjacent to the second causeway between Malaysia and Singapore)

UNITED ENGINEERS MALAYSIA BERHAD

Ownership of Malaysian listed companies

· 32.4% of Renong Berhad (see above)
· 54% of CIMA (cement producer)

Ownership of unlisted companies holding key concessions

· 100% of PLUS (holder of concession over the key North-South highway)
· 100% of Linkedua (holder of concession over the second causeway link between Malaysia and Singapore)
· 100% of ELITE (holder of concession over a highway)

CORPORATE DEBT RESTRUCTURING COMMITTEE ("CDRC")

· Non-statutory body constituted within the Central Bank administrative set-up.
· It is derived from the 'London Approach" model.
· Renong and UEM was its biggest brief. · Total Renong and UEM group debts were estimated to amount to RM20 billion (=US$5.26 billion) which constituted approximately 5% of total banking sector
· Significant involvement of foreign bank and other foreign creditors

CDRC'S BROAD OBJECTIVES

· To minimise losses to creditors, shareholders and other stakeholders through voluntary coordinated workouts;
· Preserve viable businesses suffering during the current economic conditions and hence jobs; and
· To implement a comprehensive and best practice framework for debt restructuring.

BACKGROUND TO PROPOSALS

· To offer all Renong and UEM creditors settlement of their claims in full;
· To rely solely on the Renong Group's assets for settlement of claims;
· To avoid a distress sale of Group assets at current, depressed valuations; and
· To ensure that Renong and UEM remain as financially viable going concerns, and are well positioned to take advantage and to benefit from the anticipated recovery in the nation's economy.

TOTAL INDEBTEDNESS

RENONG BERHAD

· Total Secured debt RM 2,545 million
· Total Unsecured debt RM 3,160 million

UNITED ENGINEERS MALAYSIA BERHAD

· Total Secured debt RM 2,962 million
· Total Unsecured debt RM 179 million
Total of Renong and UEM Approx RM 8,846 million = US$ 2,328 million

PARTIES INVOLVED IN DEBT SETTLEMENT

Secured creditors of Renong (foreign and local)

Including:
· Bondholders
· Floating Rate Note ("FRN") holders
· Transferable Loan Certificate ("TLC") Holders

Unsecured creditors of Renong (foreign and local)

Including:
· Bondholders
· Floating Rate Note ("FRN") holders
· Irredeemable convertible unsecured loan stocks ("ICULS")

Secured creditors of UEM (foreign and local)

Including:
· Revolving Notes holders ("RUNIF")
· TLC holders

Unsecured creditors, foreign and local, including holders of UEM irredeemable convertible unsecured loan stock ("UEM ICULs")

THE PROPOSAL

The debt settlement proposal was:

· to settle the debts of secured creditors of Renong and UEM in full in cash (in original currency of indebtedness) at completion by reference to the amount outstanding as at 30th June 1999 (exclusive of default interest and charges); and
· the unsecured creditors were to be paid 50% of the amount as at 30th June 1999 in cash and in the original currency of indebtedness at completion and 50% would be settled in PLUS Bonds (PLUS or Projek Lebuhraya Utara-Selatan Berhad is another company that is 100% owned by UEM). PLUS holds the lucrative concession over the North-South Highway in West Malaysia.

THE IMPLEMENTATION

· The centrepiece of the debt restructuring proposal revolves around Projek Lebuhraya Utara-Selatan Berhad (PLUS), a 100% subsidiary of UEM. PLUS is the strongest company in the Renong/UEM Group.
· The scheme will see PLUS raising a new bond issue and the bonds/proceeds will be utilised to settle the claims of Renong's and UEM's creditors.
· The bonds will be zero coupon with a seven (7) year maturity and priced to have a yield of 10% per annum, which is attractive compared to the prevailing interest rate and market conditions.
· PLUS will lend RM2.96 billion cash to UEM against a pledge by UEM of listed shares to PLUS. UEM will use the RM2.96 billion cash towards full settlement of its outstanding debts except for the RM179 million of Irredeemable Convertible Unsecured Loan Stocks (ICULS) which in the Proposal would be restructured through adjustment of conversion terms.
· Renong will receive RM5.4 billion from PLUS via the following:-

(i) Renong to borrow RM4.0 billion in cash through a subsidiary, and RM0.42 billion in PLUS Bonds from PLUS against a pledge by Renong of its assets to PLUS; and
(ii) Renong will receive RM1.0 billion in PLUS Bonds arising from the redemption of the Redeemable Convertible Cumulative Preference Shares (RCCPS) that is outstanding from PLUS to Renong.

· Renong will utilise RM2.5 billion cash towards the settlement in full of all Renong's secured outstanding debts, while RM1.5 billion cash will be used to settle half of Renong's unsecured outstanding debts. The remaining RM1.4 billion Renong's unsecured outstanding debts, with the exception of the outstanding RM252 million ICULS, will be settled by an exchange to PLUS Bonds.
· The outstanding claim under Renong's ICULS of RM252 million will not be repaid but restructured through adjustment of conversion terms.
· UEM's ICULS of RM179 million will not be repaid but be restructured through adjustment of conversion terms.
· Renong will undertake a structured asset disposal programme with a view to enhance the value of its existing asset portfolio in order to repay its obligation to PLUS.
· For UEM, the repayment to PLUS will be sourced from future profits of its other assets and from selective asset disposals.