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Eric Ng

China will have many more big corporate restructuring cases to tackle following the resolution of three of its most high-profile cases, according to PricewaterhouseCoopers (PWC).

The liquidation of Guangdong International Trust and Investment Corp (Gitic) and the restructurings of Guangdong Enterprises (Holdings) (GDE) and Guangzhou International Trust and Investment Corp have reached their final stages.

However, the landmark cases mark the end of the beginning rather than the beginning of the end, according to senior managers of the accountancy and corporate advisory giant.

They called on Beijing to take advantage of the 'good timing' and build on the momentum of its restructuring effort.

PWC, which is the financial adviser for at least five Chinese government-backed investment companies and fund-raising vehicles, expects more restructurings to take place in the next few years.

'It's not the end of the story,' said partner David Brown. 'In fact, in many ways it's just the end of the first chapter. We think there will be many more large cases in China waiting to be resolved.'

He saw opportunities for China to clean up the bad debts of its investment arms once and for all, in the same way that some listed companies wrote down the value of assets during recessions.

'PRC Inc has already taken its hit on its reputation, so it might as well clean up the bad debts,' he said.

Mr Brown is an adviser to bank creditors in GDE's restructuring.

China has gone through a tough learning process in dealing with corporate failures involving foreign creditors since it ordered the closure of Gitic about two years ago.

Gitic, the flagship financing arm of the Guangdong provincial government, was forced to file for bankruptcy three months after it closed down, in China's largest corporate failure. It was followed by the collapses of a number of other 'itics' and government-backed investment arms.

The heavy-handed approach to resolving the case of Gitic, once China's second-largest trust and investment company, sparked uproar among foreign creditors.

They were caught by surprise by the company's seeming overnight deterioration in financial health, as well as China's lack of an established corporate restructuring system.

Ted Osborne, also a partner with PWC, said there was a world of difference in the expectations of the Chinese government and the creditors at the start of the restructuring process.

Mr Osborne is an adviser to the Guangzhou municipal government on the Gzitic restructuring. 'The biggest challenge is getting everyone's expectations to meet,' he said. 'In China, things take a lot longer than elsewhere to decide because of government involvement.'

It took a long time for the advisers to introduce the foreign concepts of corporate restructuring to the government, he said.

The two years it had taken to restructure the companies was within their expectations. 'Personally I expected at least a year, if not one and a half to two, but never, say, three,' Mr Osborne said.

China's demonstration of its 'political will to do it properly' had helped speed up 'the most complex corporate restructuring probably anywhere in the world', according to Mr Brown.

Malcolm Macdonald, a PWC partner who is also an adviser to GDE's bank creditors, said China needed to revamp its commercial laws to give investors protection in cases of insolvency.

Under China's existing bankruptcy law, it is very difficult for creditors to put a state-owned enterprise (SOE) into bankruptcy. Gitic is the first and only SOE bankruptcy to be declared in China.

On October 31, Gitic's 200 creditors won their first payout of 731 million yuan (about HK$685.02 million), about 3.4 per cent of the debt recognised by Gitic's liquidation committee.

A day later, GDE's 135 creditors were given a one-month deadline to approve or reject a restructuring proposal that would see bank creditors get securities and cash with a total face value of about US$65 for every US$100 of debt owed.

A few days afterwards, Gzitic's more than 130 foreign creditors were offered the option to either accept an immediate one-time cash handout covering 50 per cent of outstanding principal, or a 100 per cent settlement that could extend 10 years or beyond.



Many cases expected to follow big three