Renong Debt Restructuring Statements
Renong Debt Restructuring Statements
CDRC Press Release
The following is the press release by Bank Negara Malaysia's (BNM) Corporate Debt Restructuring Committee (CDRC) regarding the Renong Group's debt restructuring plans. BNM is Malaysia's central bank while the CDRC is a special purpose vehicle which acts as a mediator between creditors and corporate debtors.
The Renong Group Debt Restructuring Plan
The CDRC is pleased that the debt restructuring scheme for Renong Group can be carried out without any financial support from the Government. This is consistent with the Government's policies where private sector solutions are applied for problems faced by Malaysian companies.
It is important to the CDRC that the restructuring of the Renong Group is implemented on a transparent basis. This in turn should enhance market stability and further boost the confidence level of investors, both local and foreign, in our capital market. The notion of fair play is paramount in restructuring exercises undertaken by the CDRC. This is reflected in the equal treatment of both local and foreign lenders in the CDRC's Proposal. Foreign investors can safely invest in Malaysia and foreign lenders can lend to Malaysian companies with the assurance that Malaysian regulators will treat local and foreign parties equally without any discrimination.
Background
In December 1998, the Government referred the original debt restructuring plans of Renong Berhad (Renong) and United Engineers (M) Berhad (UEM), jointly referred here as the "Renong Group", to the Corporate Debt Restructuring Committee (CDRC). These original proposals require some form of government financial support.
The CDRC is an initiative of the Government, established to act as a mediator between private sector companies and financial institutions for the purpose of restructuring distressed corporates. The broad objectives set for the CDRC are:
The first action of the CDRC was to review all the previous restructuring proposals prepared by Renong Berhad and its financial adviser, Credit Suisse First Boston (CSFB). This due diligence was to identify the status of the Renong Group with respect to its assets, liabilities and cash flows. Next, the CDRC met up separately with the Renong Group's management and creditors to clarify on issues affecting the parties. This starting point allowed the CDRC to understand the interest of all parties in formulating a new debt restructuring plan with the assistance of Renong Group and its advisers to meet the following objectives:
CDRC's Proposal
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 Group based on the CDRC's review and would have the ability to raise the necessary funds. Broadly, 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 ("CDRC's Proposal" or "Proposal"). 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.
Issuance of PLUS Bonds
The Proposal requires PLUS to raise approximately RM8.4 billion, based on present day value, via a new bond issue ("PLUS Bonds") to settle the claims of Renong's (RM5.4 billion) and UEM's (RM3.0 billion) creditors. Approximately RM7 billion will be offered for cash, while the remaining RM1.4 billion will be used as part settlement of existing liabilities.
PLUS will lend RM3.0 billion cash to UEM against a pledge by UEM of listed shares to PLUS. UEM will use the RM3.0 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 and RM0.4 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 Renong owns.
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.
Solution for ICULS
It is intended that the outstanding claim under Renong's ICULS of RM252 million will not be repaid but restructured through adjustment of conversion terms. This is on the basis that the ICULS were meant to be an irredeemable instrument and to be converted into equity. Meanwhile, Renong also intends to revise the conversion terms of its existing warrants at a later stage as part of this financial restructuring exercise.
Similarly for UEM, the outstanding claim under UEM's ICULS of RM179 million will not be repaid but be restructured through adjustment of conversion terms.
Repayment to PLUS
The CDRC's Proposal requires both Renong and UEM to repay PLUS. The second stage of the CDRC's Proposal is to maximise the value of assets under the Renong Group to meet this future obligation. 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. Both the CDRC and management of Renong are confident that significant value can be extracted from Renong's asset portfolio over the coming years, and that this will be sufficient to meet 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. Both the CDRC and management of UEM are confident that UEM would be able to meet its obligation using cash flow from its other assets and proceeds raised from asset disposals.
Protection of PLUS
While PLUS is required to take on additional debts of RM8.4 billion based on present day value of PLUS Bonds, such additional debts will be backed by the undertaking of Renong and UEM to repay PLUS in full as described earlier. In addition, Renong will pledge its assets via a debenture to PLUS as consideration for the scheme. UEM will also pledge listed shares via a debenture to PLUS as security.
Other Group Companies
The CDRC's Proposal does not address the liabilities at specific Renong's and UEM's subsidiary and associate companies. These liabilities will be addressed separately. The Renong Group is confident that, having settled the liabilities currently due at the holding company levels, it will be able to focus more effectively on managing the liabilities of its subsidiary and associate companies.
Benefits of CDRC's Proposal
The CDRC and Renong Group believe that the CDRC's Proposal is in the best interests of the creditors and shareholders of Renong and UEM.
All creditors' claims will be settled in full. All of UEM's creditors and all of Renong's secured creditors will receive repayment in cash, while Renong's unsecured creditors will receive 50% of the repayment in cash with the balance 50% in PLUS Bonds.
From Renong's point of view, the CDRC's Proposal avoids the immediate liquidation of Renong, in which case Renong's assets would have to be sold at current depressed market valuations, raising insufficient proceeds to repay all of its liabilities. Instead, the CDRC's Proposal enables Renong to implement a programme to realise more fully the value of its investments, and which captures the upside potential of the anticipated national economic recovery. This should put Renong in a better position to service its liabilities and to return value to shareholders.
From UEM's point of view, the CDRC's Proposal avoids the sale of strategic assets, such as PLUS, under current depressed market conditions. The Proposal enables stakeholders to realise greater value by firstly benefitting from the positive effects that the anticipated national economic recovery will have on UEM's key projects and construction-related businesses, and secondly through the retention of PLUS, UEM's most valuable asset.
Overall, the CDRC's Proposal will have immense benefit to the economy, especially the banking sector. The successful restructuring will ease non-performing loans in banks, thereby improving the overall financial health of the system. These factors should translate to improve confidence in Malaysia. The Proposal also does not impose additional burden on the Government as no Government financial support is required.
Timing for Completion
The CDRC's Proposal will be subject to approvals of PLUS's project lenders and holders of PLUS Serial Bonds, Renong Group's creditors and shareholders as well as all relevant authorities. Formal documentation of the CDRC's Proposal is currently underway, and management is confident that the plan can be completed by the third quarter of 1999.
Bernama Press Report
The following is the press report by Berita Nasional Malaysia (Bernama) regarding the Renong Group's debt restructuring plans.
PLUS TO ISSUE RM 8.41 BILLION BONDS
KUALA LUMPUR, March 8 -- Projek Lebuhraya Utara Selatan Bhd (PLUS), the star performer in Renong Bhd, will issue RM8.41 billion seven-year zero coupon bonds as part of a new restructuring exercise to help financially-troubled Renong and its affiliate United Engineers Malaysia Bhd.
Of the RM8.41 billion, PLUS, a subsidiary of UEM, would use RM2.96 billion to repay UEM loans and RM5.45 billion to repay Renong Bhd's loans.
This means Renong's earlier proposed debt restructuring involving the issuance of RM10.5 billion in government-backed bonds to repay its debts has been scrapped.
Renong's executive chairman, Halim Saad said that he wished to remain in his present capacity.
Joseph D. Gallagher, managing director for investment banking of Credit Suisse First Boston, Renong's financial adviser, told a press conference here today, that PLUS will issue RM6.96 billion in cash to new investors while the remaining RM1.4 billion will be used as part settlement of
existing liabilities.
He said the zero coupon bonds will mature in seven years on June 2006 and carries a 10 percent yield per annum.
On the RM2.96 billion PLUS would lend to UEM, it would be pledged by UEM's listed shares, he said.
UEM would use the cash to settle in full its outstanding debts except for RM179 million of irredeemable convertible unsecured loan stocks (ICULS).
The debt restructuring exercise proposed in December 1998 was approved by the corporate debt restructuring committee (CDRC) and finalised by Credit Suisse First Boston.
On the RM5.45 billion received by Renong, Renong would borrow RM4 billion in cash and RM0.42 billion in PLUS's bonds against a pledge of its assets to PLUS.
Renong will receive RM1.03 billion in PLUS bonds arising from the redemption by PLUS of its redeemable convertible cummulative preference shares.
According to a statement issued by the CDRC, Renong will use RM2.5 billion shares to fully settle its secured outstanding debts, and RM1.5 billion cash to settle half of its unsecured outstanding debts.
It said the balance of RM1.4 billion of Renong's unsecured outstanding debts, excluding the outstanding ICULS of RM252 million, would be settled by an exchange to PLUS bonds.
The statement said CDRC's proposals required both Renong and UEM to repay PLUS.
After the financial restructuring, Renong has an obligation to repay RM8.75 billion nominal value to PLUS in the year 2006 while UEM is obliged repay RM5.86 billion nominal value to PLUS in the same year.
Credit Suisse's Gallagher said Renong would undertake a structured asset disposal programme to enhance the value of its existing asset portfolio to repay its obligations to PLUS.
It has a seven-year time frame to maximise the value of its assets.
Renong's potential sources for repayment include selling certain non-core assets when market conditions improve.
"For example, if the market prices of Renong's assets increase to three times their current price, the value of its entire portfolio of listed assets would be RM4.4 billion," Gallagher said.
He said Renong could sell its land in Prolink Development Sdn Bhd, its 64 percent subsidiary.
"For example, if land value increases to RM15 per sq ft, the value of Renong's investment in Prolink increases to RM7 billion," he said.
Renong could also repay the debts through selling of strategic stakes in Putra (Projek Usahasama Transit Ringan Automatik Sdn Bhd which it wholly owns) and Parkmay (50.1 percent) after the introduction of an integrated urban transportation framework and by undertaking a capital issue when the market improves.
Under the current depressed market conditions, Renong's assets are valued at RM4.686 billion.
Out of this, RM643 million represents the 37.1 percent holding in UEM, RM478 million for its 18.3 percent holding in Commerce Asset-Holding Bhd (CAHB), RM82 million for its 60 percent holding in Faber Bhd and RM182 million for 46.8 percent holding in Time Engineering.
Its 64 percent stake in Prolink is valued at RM3.154 billion with the land price of RM7 per sq ft but the value of Putra was not disclosed.
On UEM's potential sources for debt repayment, Gallagher said this includes divesting non-core assets when the market improves, exercising put-option on Renong's shares, listing infrastructure related companies and
undertaking capital market issue when the market improves.
"Enough funds could be raised to repay UEM's obligation to PLUS if UEM's toll road companies, including PLUS, LinkeDua and ELITE, are listed.
"UEM also has significant stakes in several listed companies, including 32.4 percent in Renong and 54 percent in CIMA, the values of which are depressed as the result of the financial crisis," Gallagher added.
Renong's outstanding debts before the financial crisis which started in July 1997, amounted to only RM3.3 billion of which RM1.4 billion had an equity element for conversion.
Renong's stake in UEM prior to the crisis was valued at RM7.077 billion, Faber RM673 million, CAHB RM1.402 billion, Time Engineering RM2.461 billion and Parkmay RM149 million (RM21 million at current market value).
Asked to respond on the proposal which lacked the support from the government as earlier proposed, Halim Saad said: "I'm happy with it."
Meanwhile, CDRC's Rajendram said CDRC did not see the need for underwriting per se for the PLUS bonds due to the improved market conditions at present.
"Based on the current conditions, subscriptions should not be a problem," he said, adding that predominantly the bonds would be taken up by locals.
He said in the last two to three months, interest rates have been coming down, banks are still looking for projects to lend and there was demand by many institutions for fixed interest papers.
Rajendram said that the 10 percent interest is substantially at a premium if compared to Khazanah bonds whose interest was six to seven percent.
Gallagher said creditors of PLUS, UEM and Renong have been introduced to the restructuring plan.
An explanatory statement would be issued at the end of this month giving more details on the restructuring plan and other issues like revenue projections.
"We will submit a formal proposal to the lenders at the end of April after which we will get the various lenders' approvals.
"Upon achieving these approvals, we will be able to undertake placement of PLUS bonds and we have targeted settlement with creditors in the third quarter of this year," he added.
Gallagher said foreign bond holders of PLUS bonds would be subjected to the levy in the repatriation of capital.
Asked whether the proposal is the last to be offered to the lenders, CDRC's Rajandram said: "It is the best possible solution."
He said CDRC expects the proposal to receive support from the creditors, otherwise there would be delays and this would not be in the benefit of the creditors.
On Renong's management change, it was agreed that it would be totally relying on the current shareholders and the management of the companies involved in Renong's latest debt proposal.
Rajandram said he hopes that the restructured group, upon completion of the debt proposal, would have the capability to undertake the proposed debt restructuring programme.
He said the management and the expanded board of directors which would be announced should be able to handle and supervise the overall proposed debt plan.
This, he said is to ensure that money is raised and subsequently repaid adequately to the lenders.
"This is really for the existing management and of course the board of directors of Renong to re-examine and come out with additional backup proposals. That will improve both the managment structure as well as the transparency that is required by the market," he added.
Rajandram also said that the responsibility of managing the companies under the Renong group as well as the responsibility of what is to be done should be left to the board of directors (of Renong).
"They must be able to restructure to give confidence to the market," he said.
Monday, 8 March 1999
The press release was sourced from Bank Negara Malaysia, the central bank of Malaysia while the news report was from Bernama, the national news agency of Malaysia.