Rajah & Tann Tips Stress for Builders, Miners as Markets Churn

March 16, 2014 by  
Filed under Wind Energy Tips

Rajah Tann LLP, Southeast Asia’s
largest law firm, said construction and commodity companies in
Asia may follow shippers into financial distress this year amid
global market turbulence.

“The construction and commodities industries should be
watched,” said Singapore-based Sim Kwan Kiat, who heads the
firm’s business finance and insolvency practice. “The former
because of rising costs and the latter because of volatility.”

Sim, a 42-year-old partner at the Singapore-based firm,
also expects “increasing awareness and vigilance” among
banking regulators in Asia to prevent bad loans from worsening.
Delinquent bank debt soared to a five-year high in China at the
end of last year while stressed assets, including restructured
facilities, reached a decade-high in India.

China’s $4.2 trillion onshore bond market had its first
default earlier this month when Shanghai Chaori Solar Science
Technology Co. failed to make a full coupon payment on its
notes. Copper prices tumbled to near their lowest since 2010 as
Chinese factory production and exports data trailed estimates
while the Ukraine-Russia political conflict and the Federal
Reserve
’s tapering of stimulus added to volatility.

Equity Falls

“There’s growing uncertainty in global markets with some
factors which are still very much in a state of fluidity,” said
Sim. “There’s a chance things may take a turn for the worse,
resulting in an increase in cases of corporate distress.”

The performance of China’s economy, the Crimean crisis and
the reaction to cuts in the Fed’s bond-purchase program are
factors adding to the unease, Sim said. The Hang Seng China
Enterprises Index (HSCEI)
, a measure of Chinese shares in Hong Kong, has
fallen some 20 percent since its Dec. 2 peak through March 14,
while Russia scrapped five sovereign bond auctions this year.

Sim has acted for lenders in cross-border cases including
the workout at Danish shipping group Torm A/S in 2013, as well
as the restructuring of Drydocks World of Dubai, the biggest
shipyard operator in the Middle East. He was also involved in PT
Berlian Laju Tanker, which reorganized more than $2 billion of
debt, and restructures of Petromena ASA and PetroProd Ltd. of
Norway involving $935 million of notes.

Rajah Tann advised inspectors appointed by the Singapore
government investigating the collapse of Barings Bank in 1995,
according to its website. It also acted for a syndicate of
lenders in the insolvency of Lewis Peat, the largest rubber-trading house in the U.K., in 2000 and represented liquidators
of MF Global Holdings Ltd. in local courts to recover more than
$400 million in 2011.

Solar Stress

Chaori Solar paid just 4 million yuan ($649,360) of an 89.8
million yuan coupon payment due March 7 following three years of
losses. Recent corporate failures where debt hasn’t been repaid
include Indonesian tanker operator Berlian Laju Tanker, oil
producer Oleo Gas Participacoes SA of Brazil and wind-turbine
maker Suzlon Energy Ltd. (SUEL) of India.

Delinquent bank loans in China reached 592.1 billion yuan
in the last quarter of 2013, the highest since the 2008
financial crisis, official data showed last month. India’s
stressed assets, including bad and restructured loans, rose to
10.2 percent in September, the central bank said.

“There’s still a bit of stress in the solar industry in
China, just like in the shipping sector where there are dramatic
cycles,” said Kurt Metzger, a Singapore-based restructuring
consultant at GEM Advisory who has been working with Chinese
solar makers over the past year. “In this region, one could
also see some distress in the mining industry in Indonesia.”

To contact the reporter on this story:
David Yong in Singapore at
dyong@bloomberg.net

To contact the editors responsible for this story:
Katrina Nicholas at
knicholas2@bloomberg.net
Andrew Monahan

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