Markets

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

Singapore is starting to discover that being a financial center can sometimes leave you conflicted. The Widjaja family, among Indonesia's wealthiest, is the one delivering the message.

The Widjajas are seeking approval in the island nation's courts for a restructuring of coal miner PT Berau Coal Energy that will impose heavy losses on bondholders. The proposal in some ways echoes the saga of the family's Asia Pulp & Paper Co., which in 2001 became the worst default for international investors in Asian history. At the same time, the Widjajas plan to sell shares in a new company housing their energy assets, an offering that would be among the biggest in years for IPO-starved Singapore.

Berau, which the family bought partly from Nathaniel Rothschild in a contentious deal last year, wants to use about $45 million of company funds to buy back some of $800 million in defaulted bonds at 18 cents on the dollar, Debtwire reported on Wednesday, citing people familiar with the matter. The money is held in a capital management account, where a risky company is expected to deposit sales proceeds to ensure bond coupons are paid. 

If there's still more than $350 million of debt outstanding afterward, the company proposes to give creditors new bonds that can be redeemed starting only in 2027, pay no coupon and are subordinated, meaning they're near last in line to get any money if the firm is liquidated. 

Hardly a compelling offer. The plan, which is subject to a vote by bondholders, is a far cry from the original restructuring the company was negotiating in June, which involved much smaller losses. What's more, the Widjaja-owned company has downgraded its proposal during a period when coal prices have rallied more than 60 percent.

Burned
Coal prices have risen more than 60 percent since June, when Berau offered bondholders a far better deal
Source: Bloomberg

Whether and how such a cramdown on global bondholders will win approval is an important test of Singapore's aim to become a regional hub for restructuring arbitration.

Those likely to be watching the outcome more closely than most will be potential investors in the Widjajas' power assets. Jakarta-based Sinar Mas Group, the family’s energy-to-banking conglomerate, is planning to bundle these into a business trust and sell units to the public in the first half of 2017, the Wall Street Journal reported last week, citing people familiar with the matter. At as much as $800 million, the IPO would be Singapore's biggest since 2013.

Steady Decline
The number of stocks that are removed from the Singapore Exchange has been higher than the number of IPOs in four of the past five years
Source: Bloomberg
* Calculated as stock delistings minus completed IPOs

The fact that one of Indonesia's wealthiest families is simultaneously delivering huge losses to investors in courts and trying to raise additional funds on the city's stock exchange shows the tensions that Singapore faces in its ambitions.

New York pulls off being at the same time a restructuring and fundraising hub, so there's no reason Singapore can't. However, there will always be complicated moments. How the city deals with them will mean a lot for its future as a financial center.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Christopher Langner in Singapore at clangner@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net