Cross-Border Debt Restructuring by Indonesian Companies: A Primer on Key Considerations by an International Deal Lawyer
By Pooja Sinha (GLS Law Firm)
An Indonesian debtor seeking to undertake a cross-border debt restructuring process has to deal with the inherent challenges of doing so. These challenges include the complexities of having to manage the multiple stakeholders involved and their competing interests as well as the difficulties in navigating the complex interplay of law and market practice affecting their deals.
In the aftermath of the COVID-19 pandemic, these challenges are further amplified as the debtor is now faced with the additional challenge of navigating the slew of developments in this space which change the R&I landscape on an almost daily basis - from the different triggers for companies across industries having to face debt restructurings and/or insolvencies to new laws and new court rulings.
In a recent article, I’ve sought to distil some actionable takeaways from recent developments that are specifically relevant from the lens of an Indonesian company considering a cross-border debt restructuring which will aid in formulating an effective and efficient strategy to execute a successful debt restructuring.
By way of a summary, the key takeaways are:
1.- Engage early with creditors and other stakeholders: Lawyers and financial advisers are an important piece of the puzzle: It is doubly important for debtors to engage with creditors early in the current R&I landscape because crafting a debt restructuring proposal that factors in the interests of all stakeholders especially in the current challenging economic environment will take additional time. In addition, having to make changes to the proposal after the initial distribution may significantly delay or even disrupt the momentum of the process given the potential need for a fresh regulatory/court approval/creditor consent process.
2.- Don’t underestimate the importance of disclosure: Having a comprehensive disclosure on the impact (both current and proposed) of macro-economic conditions on the debtor’s business should be prioritized for debt restructurings given the heightened risk of investor litigation in today’s post-COVID landscape. It can also be a helpful tool for debtors to “control the narrative”. Furthermore, there are existing legal frameworks that can be deployed to streamline the process - namely the legal regime governing the issue of public capital markets debt in several jurisdictions which already incorporate detailed frameworks for diligence and disclosure. These frameworks can be adapted for the diligence and disclosure exercise undertaken to prepare information memorandums circulated to the stakeholders on a debt restructuring.
3.- Be alive to the potential for leveraging a court process for moratoriums and cram-downs: Moratoriums and cram-downs can be a valuable tool in a debtor’s arsenal to effect a successful debt restructuring. Indonesian debtors often fail to appreciate their ability to use court processes that are outside the strict four corners of their financing documentation to deploy these tools. With an increasing number of countries seeking to become “hubs” for restructurings, Indonesian debtors now potentially have more options to access foreign courts as a means to implement their debt restructurings than they had in the past.
4.- Do your internal legal “house-keeping” before engaging in a debt restructuring: This has always been an important adage for an Indonesian debtor seeking to engage in a debt restructuring. However, this has become more important in today’s R&I landscape because of two reasons - the inherent risks of any court process have been further amplified and because laws passed in certain jurisdictions temporarily suspending R&I proceedings can make it challenging to pursue certain monetary claims.
5.- Strategize and plan for the unexpected regulatory risks: Once again, this has always been an important adage for Indonesian debtors seeking to engage in a debt restructuring. The importance of this has grown in the current climate due to the enhanced risk of regulatory bodies taking on an activist role in the post-COVID world particularly where matters of public/national interest are involved.
(*) A longer version of this article was published by Indonesian media portal Hukum Online.