Treasury Today Country Profiles in association with Citi

Overcoming the refinancing wall

Businessman helping little man accross the wall

With Singaporean companies reportedly coming up against a refinancing wall this year, what can treasurers do to avoid losing out in the competition for increasingly scarce and expensive credit?

At the close of last year, Reuters news agency reported that Singaporean companies face a “financing scramble” in 2017 as more than US$12bn worth of bonds fall due.

The report suggested that the companies, many of which are exposed to slowing global trade and/or the lacklustre commodities market, might come into difficulty as banks have become wary of lending to companies exposed to these headwinds.

In a proactive move, a handful of borrowers have already begun to seek consent from bondholders to loosen the covenants of the loans as one strategy to ease the burden.

Know your bondholder

These companies are in the fortunate position of knowing who its bondholders are, something that is not always the case. As Andrew Brereton, Partner at Clifford Chance in Singapore explains: “One of the fundamental differences between capital markets and traditional bank debt lies in the tradability of bonds as securities,” explains Brereton. “Unlike bank debt, borrowers from the international capital markets do not typically know who their creditors are from one day to the next.”

The anonymity of the ultimate beneficial owners of the underlying debt securities has only become more so because of the increasing adoption of the immobilisation of debt securities in clearing systems and the increasing velocity of trading that has led to.

“As such, the first step of identifying bondholders to engage with can present a significant challenge, even before refinancing options are considered or proposed,” says Brereton.

Proactive action

But corporates will need to consider how they are going to manage their liabilities and there are a variety of techniques that can be used by debt capital markets issuers for the purposes of buying back, exchanging or altering the terms of outstanding bonds in order to restructure the balance sheet.

Perhaps most crucial is that treasurers will also need to be on their toes to take advantage of favourable conditions when they materialise. Corporates who want to refinance when the market is positive need to be ready on any given day to do it.

“Advanced planning and early engagement with investment banking and legal advisers who have experience in the application of these procedures is crucial,” says Brereton. “This coupled with a knowledge of the investor profile in the debt securities in question, is vital to any successful refinancing, restructuring or balance sheet optimisation exercise.”

What about bank loans?

Some corporates will also have bank loans that will require attention. Again, early engagement with lenders and (if the situation merits) advice from a professional financial adviser on options for refinancing and restructuring, can have a critical impact on outcomes.

Keeping in touch with lead arrangers will not only help treasurers by preparing them with the information they need to act at short notice, but will also take away some of the taxing aspects of the financing process such as documentation and coordinating with other banks in the syndicate to get the best pricing.

“Refinancing options may fall away if not implemented promptly,” explains Brereton. “Or if borrowers seek to negotiate terms too heavily, this may leave borrowers with options that are less likely to preserve value, such as restructuring, dilutive equity raising or accelerated M&A disposals.”

Brereton further advises that in circumstances where these outcomes might be possible, even if uncertain, it is important that borrowers begin to plan their approach at an early stage, with the benefit of expert advice.

“This will enable finance professionals to better navigate the complex interplay between different stakeholders (including shareholders, lenders, bondholders, trade creditors, employees, the tax authorities and any other relevant government entities) to ensure the best possible outcome for the company and provide a sustainable platform for future profitability,” he concludes.

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