Special Situations Opportunities in Upcoming Asia Restructurings

As foreign capital continues to flow into the region, will Asia’s companies embrace Western restructuring techniques?

December 12, 2013

Latham & Watkins partner David Heller moderated a panel discussion at the November 5, 2013 “Maximizing Outcomes in Upcoming Asia Restructurings” industry summit co-hosted by Latham and the Asia Securities Industry & Financial Markets Association (ASIFMA), a regional trade association.

At the event, industry leaders from across Asia, the UK and the US discussed the economic environment, rising debt levels in Asia and signs that more Asian companies will have to restructure their obligations. In this lw.com interview, Heller shares his insights into investment alternatives in a stressed environment, including special situations opportunities in future Asia restructurings.

“There are billions if not trillions of dollars of capital flowing into Asia and presumably at some point out of Asia. And whenever capital flows, a certain percentage of that capital gets it wrong and deals fail — creating distressed situations or special opportunities,” said Heller. “Historically, this economic cycle has been undeniable.”

“It’s pretty clear that there will be opportunities to re-capitalize companies — to infuse additional equity into companies that are over leveraged,” he added. “And perhaps opportunities to — although it is not a foregone conclusion — buy and sell debt owed by companies in Asia.”

How would you describe a special situations opportunity?

Heller: A special situations opportunity is anything other than a traditional or routine opportunity. In other words, it’s where you create unusual investment vehicles and techniques — whether it’s a hybrid of capital instruments, a combination of notes and equity, or notes with an equity upside or preferred stock. These special situations arise out of the financial distress we would expect in any market.

How has the flow of foreign capital into Asia influenced restructuring techniques?

Heller: Historically, Asia hasn’t had a Western-like restructuring process. It has been a much more closed, government-centric system — rather than private enterprise driven. As foreign capital has been embraced in Asia and as more Asian companies are seeking capital outside of Asia — the idea is that as Western capital flows, Western restructuring techniques will become relevant. And from a legal perspective, nobody knows for sure how much — if any — of the Western restructuring techniques will be embraced in Asia.

It’s a historical, cultural and systemic difference. Many of the Asian economies are much more government driven than private sector driven. And if the government handles the restructurings by fiat then there is less of an opportunity for Western-style legal work. On the other hand, as Western-style legal approaches become more accepted there will be more of an opportunity.


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