Jakarta's Mr. Workout
On the streets of Jakarta's debt-ravaged financial district, they call him The Negotiator, a reference to the Hollywood action movie. But he doesn't wear camouflage fatigues or pack a pistol. He prefers monogrammed cufflinks and quiet ties, and arms himself with bottles of Vermont maple syrup to reward helpful government officials. He's Richard A. Gitlin, a U.S. bankruptcy lawyer tapped by the International Monetary Fund to chip away at Indonesia's $80 billion offshore corporate debt. "This is all about saving jobs and alleviating poverty," says Gitlin. "It's about saving lives."
The soft-spoken attorney from Hartford, Conn., represents one of Indonesia's few real hopes for economic recovery. The nation's corporations are slowly expiring, suffocated by debt they cannot pay and spurned by lenders who see them as terrible risks. Yet Gitlin may soon wrap up a landmark corporate debt workout for one of Indonesia's insolvent conglomerates, Bakrie & Bros. If the debt-for-equity deal, negotiated over the last few months, can be finalized, that will give other companies the courage to face their creditors and take the first step in getting Indonesia back to business.
PRAGMATIC. Gitlin, 56, certainly has his work cut out for him. At least 110 companies with total debt of $14 billion--nearly 20% of Indonesia's offshore corporate debt--have asked him for help. Gitlin and his team of a dozen Western lawyers are officially based in a cramped room at the Finance Ministry, but operate mostly out of the lobby of the Grand Hyatt hotel. The Finance Ministry won't say how much Gitlin earns, but it is seeking World Bank help to pay for him. Gitlin's caseload is expected to increase to 600 companies over the next few years. Debtors range from industrial conglomerates to a musical-instrument store. "The magnitude is huge," says Jusuf Anwar, the Finance Ministry official to whom Gitlin reports.
The IMF looked far and wide to find a lawyer who could tackle Indonesia's massive debt load. Gitlin had made a name for himself at his own U.S.-British law firm, Hebb & Gitlin, during the collapse of the Maxwell International media empire in 1991. "His strength is that he understands commercial reality and he talks in commercial terms that businessmen from any country can understand," says John Knight, Chase Manhattan Bank's regional legal advisor. Gitlin has also written a book, lectured on bankruptcy, and authored internal papers for the IMF on debt restructuring. His last paper, The Jakarta Initiative, landed him the job.
Gitlin's strategy is pragmatic in a country where bankruptcy court has little clout. His favorite method is the debt-equity swap, and he advises his clients to negotiate out of court with creditors, making painful sacrifices if need be. Gitlin often meets well-heeled Indonesians over coffee at the Grand Hyatt and explains that the sooner they clean up their balance sheets, the sooner they'll get ahead. Says Gitlin: "I tell them, `If you cut a deal now, you'll spend the next six months of your life making money while your competitors will be trying to save a nickel on a dime."'
The first Indonesian to take Gitlin's advice was Aburizal Bakrie, leader of Indonesia's pribumi--or indigenous Muslim--business community. On Jan. 6, Gitlin persuaded Bakrie's 300 foreign creditors to swap $1 billion in bad debt for 80% of five key Bakrie assets, including a 5% stake in the Iridium global satellite cell-phone network. In February, Bakrie prepared a preliminary agreement for his creditors to sign, say sources familiar with the deal. Gitlin hopes it will serve as a blueprint for other workouts for banks and conglomerates. Final terms are expected in May.
For Indonesia, the timing could not be better. "Bankers are worn out after a year and a half of battles in a strange land with nothing to hold on to," says Dimitri Pantazaras, senior investment officer with the International Finance Corp., part of the World Bank. Yet Gitlin's success depends on support not just from creditors but from the government. He says he has commitments from senior officials to abolish rules barring some debt-for-equity swaps. He's also pressing for a "one-stop regulatory process" to replace a messy procedure that requires 6 to 10 signatures from officials for every debt restructuring.
Gitlin also hopes the government elected this June will be as supportive. "This process has the potential to be set back by giant steps," admits Gitlin. "I just pray that won't happen." So, it seems, do Indonesia's creditors.