"My tale is of the Old Asia."
That's how David Anderson, the Singapore-based managing director of Lazard Asia, prefaced his remarks as one of four panelists at a discussion on "Restructuring Asian Companies for Global Competitiveness." He and other panelists described for the audience some of the hard lessons they have learned over the course of conducting privatization, acquisition and restructuring deals in Asia.
"There is an Old Asia still to be fixed in the New Asia that is clearly there," Anderson reminded everyone.
The impetus for corporate restructuring, he said, comes from many quarters: The company may be running out of cash, has broken loan covenants, or is threatened by court action. But restructuring, in his experience, rarely has to do with boosting efficiency and competitiveness, or with fundamentally improving the businesses.
"It's all about sorting out the balance sheet," he said. "There is precious little restructuring in Southeast Asia. You don't have bankruptcy laws that work. It's hard for anybody to do anything. But good corporate governance and proper bankruptcy legislation would allow that to happen."
In the case of the troubled Korean manufacturer Daewoo, for which his company restructured the debt, Anderson described Daewoo's mountain of problems that led to its running out of cash last July. He conceded that facts are hard to find. "Daewoo had $80 billion in debt; it had probably been bankrupt for years," Anderson said. "Daewoo then persuaded an investment trust company to lend it $28 billion. It was quite an achievement to get the loan."
But there has not been industrial or manufacturing restructuring, he noted; rather, just a sorting out of the level of debt.
Anderson's experiences were echoed in varying degrees by the three other panelists. The panel included a legal expert, Hsiao-Chiung Li, a partner at Shearman & Sterling who finances transactions relating to Chinese companies, and David Zhe Wei, managing director in Shanghai for Oriental Security, Inc., who is involved in the expected Chinese entry to the World Trade Organization. They were joined by Jane Crawford, based in Tokyo and Singapore as director of investment groups for 3I Group plc. HBS professor Louis Wells moderated the discussion.
Hsiao-Chiung, by specializing in corporate finance and securities transactions, has represented her firm for the last two years in debt and asset restructurings for Chinese and Hong Kong companies.
"Restructuring in Hong Kong tends to be much more unstable," she told the group, pointing out that Singapore and Thailand have at least a model for bankruptcy proceedings similar to Chapter 11.
"For a sprawling company in the Asian style," she said, "it's a matter of how to not have a "'tyranny of minority' situation."
Answering Key Questions
In tandem with this, she said, is identifying the problem that's compelling the restructuring, and answering the question: "How much is the will to restructure?" A successful company, she said, must be willing to put in valuable assets, not just redistribute its current ones.
If the problem is that a product is outdated, that the company has outgrown its management abilities, or that there is no core business at the heart of the enterprise, then if shareholders retain a fundamental reason for going forward they will be able to convince creditors to back them up. "In the management of this process, there has to be transparency," Hsiao-Chiung asserted.
"In the end there has to be a viable business that emerges," she said. "The key thing is to identify the core business and put in an oversight structure so that it will have some basis for operating.
"The problem is that these plans are always based on projected cash flow. You might end up coming back and doing it over again."
As for Japan, Crawford said, companies have been treading water at best. "The effect on global competitiveness is that not a lot has happened," she said. "Managers before the crisis only managed the top line, so experience was desperately missing. A core skill was in writing prospectuses; they were all wonderful at spelling, but had no experience of a corporate nature.
"In Japan," she continued, "there has been no growth to speak of for ten years. But there has been an amazing cultural change in businesses, and people talk about the future. The topic of change has emerged stronger, and people accept that the previous Japanese way was not the only way.
"It's accepted there will be pain," Crawford said. "But this acceptance is important."
Added Anderson, "One of the Asian issues is that lenders were or at least thought they were lending to the government itself. They say, 'I didn't need to do credit analysis because I thought the government would see me right.'"
Career Prospects in Asia
Asked by the audience about career prospects in Asia for fledgling MBAs, Hsiao-Chiung noted that graduates from Western law and business schools tend to end up in foreign companies that have operations in Asia. There they find the comfort of a more familiar corporate culture. "These people are pulling a lot of weight," she said, "but not making a direct impact in the region."
"I don't see the trend going the other way," she concluded. "We don't end up in local companies in Asia because of our bi-cultural background."
Anderson said that despite all these problems, he believes the business modernization process in Asia to be irreversible. "As foreign capital comes in with its own requirements, such as transparency," he told the audience, "companies will look more like their Western counterparts.
"There has never been a shortage of talent or training in Asia," he said. "But the environment is just too tough."