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Workouts and Restructurings In Malaysia Presented by: C. Rajandram Chairman, Corporate Debt Restructuring Committee Mal

CDRC - 29 November 1999. 2. Pre-Crisis Period. Economic expansion was largely funded by debts obtained from the banking sectorFunding mismatch for privatisation and large scale infrastructure projectsCorporations were more concern with their Earnings Per Share (EPS) instead of cash flow adequacy.

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Workouts and Restructurings In Malaysia Presented by: C. Rajandram Chairman, Corporate Debt Restructuring Committee Mal

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    1. Workouts and Restructurings In Malaysia Presented by: C. Rajandram Chairman, Corporate Debt Restructuring Committee Malaysia Hotel Inter-Continental, Sydney, Australia 29 November 1999

    2. CDRC - 29 November 1999 2 Pre-Crisis Period Bank loans - have always been the main pool of capital - to fund the aggressive growth of corporates during the boom period As an indication of the heavy reliance on the banking sector: Banking loans outstanding as at July 1999 = RM425 billion (including loans sold to Cagamas & Danaharta) Debt securities issues outstanding as at July 1999 - RM78 billion Bank loans - easily constitute 70% of corporate sector liabilities Certainly corporates have over-geared themselves to fund the aggressive growth And the problem comes to light only when liquidity is squeezed and interest rate rises Apart from the consequences of the regional financial/economic crisis which affected the corporates to meet its debt obligations The distress on the financial system would have been less severe had the credit risk management system of the banks been more effective Elements of double leveraging, collateral-based lending, emphasis on profits rather than cash flow management, allowing mis-matching of funds - are equally the conscious decisions of the lenders as it is of borrowers Bank loans - have always been the main pool of capital - to fund the aggressive growth of corporates during the boom period As an indication of the heavy reliance on the banking sector: Banking loans outstanding as at July 1999 = RM425 billion (including loans sold to Cagamas & Danaharta) Debt securities issues outstanding as at July 1999 - RM78 billion Bank loans - easily constitute 70% of corporate sector liabilities Certainly corporates have over-geared themselves to fund the aggressive growth And the problem comes to light only when liquidity is squeezed and interest rate rises Apart from the consequences of the regional financial/economic crisis which affected the corporates to meet its debt obligations The distress on the financial system would have been less severe had the credit risk management system of the banks been more effective Elements of double leveraging, collateral-based lending, emphasis on profits rather than cash flow management, allowing mis-matching of funds - are equally the conscious decisions of the lenders as it is of borrowers

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    8. CDRC - 29 November 1999 8 Co-ordination Flow To achieve economic growth - the health of both the banking system (being the provider of life line) and the corporate sector (being the engine of growth) need to be restored - because it is the effective working together of the 2 sectors that create a prosperous economy The revival effort is collectively spearheaded by the 3 agencies - Danaharta, Danamodal & CDRC - all of which are interdependent and complementary - representing a comprehensive and coherent plan towards strengthening not only the banking sector but the corporate sector as well The banking sectors balance sheet has been strengthened with the acquisition of NPLs by Danaharta and the injection of fresh capital by Danamodal - thus allowing banks to focus their attention on renewed lending and rebuilding profitability However, the 2 actions in itself does not solve the macro-economic problem - such as wastage of productive capacity and unemployment, nor guarantee economic growthTo achieve economic growth - the health of both the banking system (being the provider of life line) and the corporate sector (being the engine of growth) need to be restored - because it is the effective working together of the 2 sectors that create a prosperous economy The revival effort is collectively spearheaded by the 3 agencies - Danaharta, Danamodal & CDRC - all of which are interdependent and complementary - representing a comprehensive and coherent plan towards strengthening not only the banking sector but the corporate sector as well The banking sectors balance sheet has been strengthened with the acquisition of NPLs by Danaharta and the injection of fresh capital by Danamodal - thus allowing banks to focus their attention on renewed lending and rebuilding profitability However, the 2 actions in itself does not solve the macro-economic problem - such as wastage of productive capacity and unemployment, nor guarantee economic growth

    9. CDRC - 29 November 1999 9 Interplay Between Formal and Informal Workouts Corporate recovery - being the goose that lay the golden egg - is essential in facilitating economic recovery Because of the multiplier effects that increased business spending would have - for example in generating new employment opportunities and in creating demand for intermediate inputs and supporting services - all of which would expand the economy Corporate recovery - being the goose that lay the golden egg - is essential in facilitating economic recovery Because of the multiplier effects that increased business spending would have - for example in generating new employment opportunities and in creating demand for intermediate inputs and supporting services - all of which would expand the economy

    10. CDRC - 29 November 1999 10 Interplay Between Formal and Informal Workouts Corporate recovery - being the goose that lay the golden egg - is essential in facilitating economic recovery Because of the multiplier effects that increased business spending would have - for example in generating new employment opportunities and in creating demand for intermediate inputs and supporting services - all of which would expand the economy Corporate recovery - being the goose that lay the golden egg - is essential in facilitating economic recovery Because of the multiplier effects that increased business spending would have - for example in generating new employment opportunities and in creating demand for intermediate inputs and supporting services - all of which would expand the economy

    11. CDRC - 29 November 1999 11 Issues and Challenges Having established that - corporate recovery - is crucial to a sustainable economic recovery CDRC - is one of the agencies that facilitates corporate recovery - by way of mediating between the stakeholders A key element in our modus operandi - CDRC provides a platform for voluntary workouts particularly in a multi-lender scenario Cultivating a culture of negotiation / compromising / consensus amongst parties with vested interest - so as to preserve the going concern concept of the corporate sector and avoid destruction of economic value and any spin-off benefits This is important because - current insolvency legislation does not provide the range of solutions required to preserve value for affected stakeholders - particularly in complex, multi-lender group situation For most parts - the usual receivership & liquidation administrators do not discriminate the between the viable & non-viable businesses - resulting in the inevitable demise of these affected companies Also, the source of distress for many companies is largely related to financing, which when resolved, will significantly improve the prospects & viability of the companies concerned Having established that - corporate recovery - is crucial to a sustainable economic recovery CDRC - is one of the agencies that facilitates corporate recovery - by way of mediating between the stakeholders A key element in our modus operandi - CDRC provides a platform for voluntary workouts particularly in a multi-lender scenario Cultivating a culture of negotiation / compromising / consensus amongst parties with vested interest - so as to preserve the going concern concept of the corporate sector and avoid destruction of economic value and any spin-off benefits This is important because - current insolvency legislation does not provide the range of solutions required to preserve value for affected stakeholders - particularly in complex, multi-lender group situation For most parts - the usual receivership & liquidation administrators do not discriminate the between the viable & non-viable businesses - resulting in the inevitable demise of these affected companies Also, the source of distress for many companies is largely related to financing, which when resolved, will significantly improve the prospects & viability of the companies concerned

    12. CDRC - 29 November 1999 12 Issues and Challenges Having established that - corporate recovery - is crucial to a sustainable economic recovery CDRC - is one of the agencies that facilitates corporate recovery - by way of mediating between the stakeholders A key element in our modus operandi - CDRC provides a platform for voluntary workouts particularly in a multi-lender scenario Cultivating a culture of negotiation / compromising / consensus amongst parties with vested interest - so as to preserve the going concern concept of the corporate sector and avoid destruction of economic value and any spin-off benefits This is important because - current insolvency legislation does not provide the range of solutions required to preserve value for affected stakeholders - particularly in complex, multi-lender group situation For most parts - the usual receivership & liquidation administrators do not discriminate the between the viable & non-viable businesses - resulting in the inevitable demise of these affected companies Also, the source of distress for many companies is largely related to financing, which when resolved, will significantly improve the prospects & viability of the companies concerned Having established that - corporate recovery - is crucial to a sustainable economic recovery CDRC - is one of the agencies that facilitates corporate recovery - by way of mediating between the stakeholders A key element in our modus operandi - CDRC provides a platform for voluntary workouts particularly in a multi-lender scenario Cultivating a culture of negotiation / compromising / consensus amongst parties with vested interest - so as to preserve the going concern concept of the corporate sector and avoid destruction of economic value and any spin-off benefits This is important because - current insolvency legislation does not provide the range of solutions required to preserve value for affected stakeholders - particularly in complex, multi-lender group situation For most parts - the usual receivership & liquidation administrators do not discriminate the between the viable & non-viable businesses - resulting in the inevitable demise of these affected companies Also, the source of distress for many companies is largely related to financing, which when resolved, will significantly improve the prospects & viability of the companies concerned

    13. CDRC - 29 November 1999 13 Issues and Challenges Having established that - corporate recovery - is crucial to a sustainable economic recovery CDRC - is one of the agencies that facilitates corporate recovery - by way of mediating between the stakeholders A key element in our modus operandi - CDRC provides a platform for voluntary workouts particularly in a multi-lender scenario Cultivating a culture of negotiation / compromising / consensus amongst parties with vested interest - so as to preserve the going concern concept of the corporate sector and avoid destruction of economic value and any spin-off benefits This is important because - current insolvency legislation does not provide the range of solutions required to preserve value for affected stakeholders - particularly in complex, multi-lender group situation For most parts - the usual receivership & liquidation administrators do not discriminate the between the viable & non-viable businesses - resulting in the inevitable demise of these affected companies Also, the source of distress for many companies is largely related to financing, which when resolved, will significantly improve the prospects & viability of the companies concerned Having established that - corporate recovery - is crucial to a sustainable economic recovery CDRC - is one of the agencies that facilitates corporate recovery - by way of mediating between the stakeholders A key element in our modus operandi - CDRC provides a platform for voluntary workouts particularly in a multi-lender scenario Cultivating a culture of negotiation / compromising / consensus amongst parties with vested interest - so as to preserve the going concern concept of the corporate sector and avoid destruction of economic value and any spin-off benefits This is important because - current insolvency legislation does not provide the range of solutions required to preserve value for affected stakeholders - particularly in complex, multi-lender group situation For most parts - the usual receivership & liquidation administrators do not discriminate the between the viable & non-viable businesses - resulting in the inevitable demise of these affected companies Also, the source of distress for many companies is largely related to financing, which when resolved, will significantly improve the prospects & viability of the companies concerned

    14. CDRC - 29 November 1999 14 Issues and Challenges Having established that - corporate recovery - is crucial to a sustainable economic recovery CDRC - is one of the agencies that facilitates corporate recovery - by way of mediating between the stakeholders A key element in our modus operandi - CDRC provides a platform for voluntary workouts particularly in a multi-lender scenario Cultivating a culture of negotiation / compromising / consensus amongst parties with vested interest - so as to preserve the going concern concept of the corporate sector and avoid destruction of economic value and any spin-off benefits This is important because - current insolvency legislation does not provide the range of solutions required to preserve value for affected stakeholders - particularly in complex, multi-lender group situation For most parts - the usual receivership & liquidation administrators do not discriminate the between the viable & non-viable businesses - resulting in the inevitable demise of these affected companies Also, the source of distress for many companies is largely related to financing, which when resolved, will significantly improve the prospects & viability of the companies concerned Having established that - corporate recovery - is crucial to a sustainable economic recovery CDRC - is one of the agencies that facilitates corporate recovery - by way of mediating between the stakeholders A key element in our modus operandi - CDRC provides a platform for voluntary workouts particularly in a multi-lender scenario Cultivating a culture of negotiation / compromising / consensus amongst parties with vested interest - so as to preserve the going concern concept of the corporate sector and avoid destruction of economic value and any spin-off benefits This is important because - current insolvency legislation does not provide the range of solutions required to preserve value for affected stakeholders - particularly in complex, multi-lender group situation For most parts - the usual receivership & liquidation administrators do not discriminate the between the viable & non-viable businesses - resulting in the inevitable demise of these affected companies Also, the source of distress for many companies is largely related to financing, which when resolved, will significantly improve the prospects & viability of the companies concerned

    15. CDRC - 29 November 1999 15 Issues and Challenges Having established that - corporate recovery - is crucial to a sustainable economic recovery CDRC - is one of the agencies that facilitates corporate recovery - by way of mediating between the stakeholders A key element in our modus operandi - CDRC provides a platform for voluntary workouts particularly in a multi-lender scenario Cultivating a culture of negotiation / compromising / consensus amongst parties with vested interest - so as to preserve the going concern concept of the corporate sector and avoid destruction of economic value and any spin-off benefits This is important because - current insolvency legislation does not provide the range of solutions required to preserve value for affected stakeholders - particularly in complex, multi-lender group situation For most parts - the usual receivership & liquidation administrators do not discriminate the between the viable & non-viable businesses - resulting in the inevitable demise of these affected companies Also, the source of distress for many companies is largely related to financing, which when resolved, will significantly improve the prospects & viability of the companies concerned Having established that - corporate recovery - is crucial to a sustainable economic recovery CDRC - is one of the agencies that facilitates corporate recovery - by way of mediating between the stakeholders A key element in our modus operandi - CDRC provides a platform for voluntary workouts particularly in a multi-lender scenario Cultivating a culture of negotiation / compromising / consensus amongst parties with vested interest - so as to preserve the going concern concept of the corporate sector and avoid destruction of economic value and any spin-off benefits This is important because - current insolvency legislation does not provide the range of solutions required to preserve value for affected stakeholders - particularly in complex, multi-lender group situation For most parts - the usual receivership & liquidation administrators do not discriminate the between the viable & non-viable businesses - resulting in the inevitable demise of these affected companies Also, the source of distress for many companies is largely related to financing, which when resolved, will significantly improve the prospects & viability of the companies concerned

    16. CDRC - 29 November 1999 16 Issues and Challenges Having established that - corporate recovery - is crucial to a sustainable economic recovery CDRC - is one of the agencies that facilitates corporate recovery - by way of mediating between the stakeholders A key element in our modus operandi - CDRC provides a platform for voluntary workouts particularly in a multi-lender scenario Cultivating a culture of negotiation / compromising / consensus amongst parties with vested interest - so as to preserve the going concern concept of the corporate sector and avoid destruction of economic value and any spin-off benefits This is important because - current insolvency legislation does not provide the range of solutions required to preserve value for affected stakeholders - particularly in complex, multi-lender group situation For most parts - the usual receivership & liquidation administrators do not discriminate the between the viable & non-viable businesses - resulting in the inevitable demise of these affected companies Also, the source of distress for many companies is largely related to financing, which when resolved, will significantly improve the prospects & viability of the companies concerned Having established that - corporate recovery - is crucial to a sustainable economic recovery CDRC - is one of the agencies that facilitates corporate recovery - by way of mediating between the stakeholders A key element in our modus operandi - CDRC provides a platform for voluntary workouts particularly in a multi-lender scenario Cultivating a culture of negotiation / compromising / consensus amongst parties with vested interest - so as to preserve the going concern concept of the corporate sector and avoid destruction of economic value and any spin-off benefits This is important because - current insolvency legislation does not provide the range of solutions required to preserve value for affected stakeholders - particularly in complex, multi-lender group situation For most parts - the usual receivership & liquidation administrators do not discriminate the between the viable & non-viable businesses - resulting in the inevitable demise of these affected companies Also, the source of distress for many companies is largely related to financing, which when resolved, will significantly improve the prospects & viability of the companies concerned

    17. CDRC - 29 November 1999 17 The Way Forward Having established that - corporate recovery - is crucial to a sustainable economic recovery CDRC - is one of the agencies that facilitates corporate recovery - by way of mediating between the stakeholders A key element in our modus operandi - CDRC provides a platform for voluntary workouts particularly in a multi-lender scenario Cultivating a culture of negotiation / compromising / consensus amongst parties with vested interest - so as to preserve the going concern concept of the corporate sector and avoid destruction of economic value and any spin-off benefits This is important because - current insolvency legislation does not provide the range of solutions required to preserve value for affected stakeholders - particularly in complex, multi-lender group situation For most parts - the usual receivership & liquidation administrators do not discriminate the between the viable & non-viable businesses - resulting in the inevitable demise of these affected companies Also, the source of distress for many companies is largely related to financing, which when resolved, will significantly improve the prospects & viability of the companies concerned Having established that - corporate recovery - is crucial to a sustainable economic recovery CDRC - is one of the agencies that facilitates corporate recovery - by way of mediating between the stakeholders A key element in our modus operandi - CDRC provides a platform for voluntary workouts particularly in a multi-lender scenario Cultivating a culture of negotiation / compromising / consensus amongst parties with vested interest - so as to preserve the going concern concept of the corporate sector and avoid destruction of economic value and any spin-off benefits This is important because - current insolvency legislation does not provide the range of solutions required to preserve value for affected stakeholders - particularly in complex, multi-lender group situation For most parts - the usual receivership & liquidation administrators do not discriminate the between the viable & non-viable businesses - resulting in the inevitable demise of these affected companies Also, the source of distress for many companies is largely related to financing, which when resolved, will significantly improve the prospects & viability of the companies concerned

    18. CDRC - 29 November 1999 18 The Way Forward Having established that - corporate recovery - is crucial to a sustainable economic recovery CDRC - is one of the agencies that facilitates corporate recovery - by way of mediating between the stakeholders A key element in our modus operandi - CDRC provides a platform for voluntary workouts particularly in a multi-lender scenario Cultivating a culture of negotiation / compromising / consensus amongst parties with vested interest - so as to preserve the going concern concept of the corporate sector and avoid destruction of economic value and any spin-off benefits This is important because - current insolvency legislation does not provide the range of solutions required to preserve value for affected stakeholders - particularly in complex, multi-lender group situation For most parts - the usual receivership & liquidation administrators do not discriminate the between the viable & non-viable businesses - resulting in the inevitable demise of these affected companies Also, the source of distress for many companies is largely related to financing, which when resolved, will significantly improve the prospects & viability of the companies concerned Having established that - corporate recovery - is crucial to a sustainable economic recovery CDRC - is one of the agencies that facilitates corporate recovery - by way of mediating between the stakeholders A key element in our modus operandi - CDRC provides a platform for voluntary workouts particularly in a multi-lender scenario Cultivating a culture of negotiation / compromising / consensus amongst parties with vested interest - so as to preserve the going concern concept of the corporate sector and avoid destruction of economic value and any spin-off benefits This is important because - current insolvency legislation does not provide the range of solutions required to preserve value for affected stakeholders - particularly in complex, multi-lender group situation For most parts - the usual receivership & liquidation administrators do not discriminate the between the viable & non-viable businesses - resulting in the inevitable demise of these affected companies Also, the source of distress for many companies is largely related to financing, which when resolved, will significantly improve the prospects & viability of the companies concerned

    19. CDRC - 29 November 1999 19 Thank you. Having established that - corporate recovery - is crucial to a sustainable economic recovery CDRC - is one of the agencies that facilitates corporate recovery - by way of mediating between the stakeholders A key element in our modus operandi - CDRC provides a platform for voluntary workouts particularly in a multi-lender scenario Cultivating a culture of negotiation / compromising / consensus amongst parties with vested interest - so as to preserve the going concern concept of the corporate sector and avoid destruction of economic value and any spin-off benefits This is important because - current insolvency legislation does not provide the range of solutions required to preserve value for affected stakeholders - particularly in complex, multi-lender group situation For most parts - the usual receivership & liquidation administrators do not discriminate the between the viable & non-viable businesses - resulting in the inevitable demise of these affected companies Also, the source of distress for many companies is largely related to financing, which when resolved, will significantly improve the prospects & viability of the companies concerned Having established that - corporate recovery - is crucial to a sustainable economic recovery CDRC - is one of the agencies that facilitates corporate recovery - by way of mediating between the stakeholders A key element in our modus operandi - CDRC provides a platform for voluntary workouts particularly in a multi-lender scenario Cultivating a culture of negotiation / compromising / consensus amongst parties with vested interest - so as to preserve the going concern concept of the corporate sector and avoid destruction of economic value and any spin-off benefits This is important because - current insolvency legislation does not provide the range of solutions required to preserve value for affected stakeholders - particularly in complex, multi-lender group situation For most parts - the usual receivership & liquidation administrators do not discriminate the between the viable & non-viable businesses - resulting in the inevitable demise of these affected companies Also, the source of distress for many companies is largely related to financing, which when resolved, will significantly improve the prospects & viability of the companies concerned

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