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The winners and losers of Indonesia’s debt restructuring marathon
Loans at risk have almost reached the pre-pandemic level, but banks have reported cleaner balance sheets to the Financial Services Authority.
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The Indonesian Employers Association (Apindo) has demanded a three-year moratorium on the filing of bankruptcy and PKPU petitions as a result of the pandemic. (Courtesy of/kontan.co.id)
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any debt restructuring marathon cases are going downhill in the suspension of debt payment (PKPU) and bankruptcy courts. These cases were mostly triggered by the pandemic and had many root causes. Solving the root causes may take years.
The Bankruptcy Law provides two avenues in court: supervised debt restructuring schemes, namely PKPU, and bankruptcy proceedings. Negotiations over the court settlement are often head spinning. To settle the terms, it is a contest between creditors with their team of lawyers and financial advisors, with the appointed receivers that should act as referees.
Everyone wants a deal, but no one is keen on taking losses. Creditors will argue about the terms and in the process decide on who should club together. The chaos can go on endlessly. It is a zigzag, sideways, forward, backward, down, up to reach better terms and avoid stingier ones in the composition plan. After all, it’s a zero-sum game.
Restructuring proceedings tend to take the form of PKPU as compared to bankruptcy proceedings. The court results show us that only a few companies have been liquidated or declared bankrupt.
Among the short list, we have only seen a few big companies. In fact, the proportion of PKPU cases at the Jakarta Commercial Court has continued to climb, reaching 92 percent of 2023 cases as of May. Interestingly, there are significant numbers of repayment failures post PKPU’s homologation, which were supposed to be creditors’ voting decisions toward a composition plan.
For example, a listed property company was declared bankrupt after failing to fulfill its homologation agreement with its creditors merely three years after the original homologation agreement in 2019. A subsidiary of a big mining companies in East Kalimantan was declared bankrupt in 2022 after a majority of its creditors decided to revoke the composition plan and homologation status in 2021 due to repayment failures and not acting in good faith.
Most of the failed homologations were driven by incompliance with the composition plans, which were drafted either carelessly or purely to mislead. The first one is harmful but manageable if the plan is drafted by an advisor with a strong financial and commercial acumen to objectively forecast the revitalization plan for a debtor’s concern. But the latter one is rather devastating, as the receivers, team of lawyers and advisors do not objectively put in sufficient efforts to restructure and only enjoy the juicy success fees as a percentage of the restructured debt.
