pengurusan danaharta nasional berhad malaysia

THE WORLD BANK CONFERENCE ON“CORPORATE RESTRUCTURING:

INTERNATIONAL BEST PRACTICES”

THE ROLE AND PROGRESS OFTHE ROLE AND PROGRESS OF

Pengurusan Danaharta Nasional BerhadMalaysia

OVERVIEW OF ASSET OVERVIEW OF ASSET MANAGEMENT COMPANIES MANAGEMENT COMPANIES

(AMCs)(AMCs)

IN A SITUATION OF ECONOMIC AND FINANCIAL CRISIS, IN A SITUATION OF ECONOMIC AND FINANCIAL CRISIS, BANKS DISTRACTED BY NPL MANAGEMENT MAY NOT BE BANKS DISTRACTED BY NPL MANAGEMENT MAY NOT BE

ABLE TO FOCUS ON ITS CORE ACTIVITIES - FINANCIAL ABLE TO FOCUS ON ITS CORE ACTIVITIES - FINANCIAL INTERMEDIATION MAY BREAK DOWN……….INTERMEDIATION MAY BREAK DOWN……….

• Different banking landscape - one borrower, many bankers • Slow pace - recovery efforts dependent on existing bankruptcy and

foreclosure laws• Banks have no special powers• Moral hazard - are banks willing to write-off loan losses?

THEREFORE, AMCs ARE THE SOLUTIONTHEREFORE, AMCs ARE THE SOLUTIONTO THE NPL PROBLEMTO THE NPL PROBLEM

ASSET MANAGEMENT COMPANIES ASSET MANAGEMENT COMPANIES (AMCs)(AMCs)

• A catch-all phrase to describe organisations established to acquire NPLs from financial institutions with the objective of recovering value from resolution or disposal

• Most AMCs are specifically designed to suit national situation, thus the organisation needs to be practical and solution-oriented

• Usually set up in answer to collapse of banking institutions or because of threat of banking system collapse e.g. RTC, Securum

• AMCs, together with recapitalisation agency, can contribute to banking sector restructuring

THE AMC CONTINUUMTHE AMC CONTINUUM

• Rapid disposition agencies are most effective when there is a large pool of NPL investors, large numbers of accounts and a quick disposition is required

• A true AMC performs best when the number of accounts are manageable, when the NPLs are structural in nature, and the AMC has the wherewithal to resolve NPLs

Asset ManagementCompany

Rapid DispositionAgency

WarehouseAgency

Types of AMCs

ADVANTAGES OF AMCsADVANTAGES OF AMCs

• Removes NPL distraction from banking system

• Minimise side effects on the economy

• Holistic, organised and focussed approach towards NPL resolution

• NPL resolution vs. relationship banking - breaks corporate-bank links

• Valuation - fair market vs book value

• Special powers

• Economies of scale - disposal, management

IN SUMMARYIN SUMMARY

AMCs are a potent force in dealing with NPLs, provided they suit the national situation,

be practical and solution-oriented, and

take steps to enhance their operating environment

HOWEVER

AMCs must be made a finite-life organisation and

not allowed to perpetuate itself

to avoid moral hazard issues…...

MALAYSIA’SMALAYSIA’SBANKING SECTOR BANKING SECTOR

RESTRUCTURING PLANRESTRUCTURING PLAN

COMPREHENSIVE BANKING COMPREHENSIVE BANKING RESTRUCTURING PLANRESTRUCTURING PLAN

• Prevent a banking crisis

• Encourage FIs to continue to lend

• Enhance market efficiency

• Support economic recovery

OBJECTIVES

Short-term Medium/Long-term

• Create a resilient banking system

• Develop an efficient & competitive banking sector

• Broaden & deepen financial markets and strengthen financial infrastructure

BORROWERS

CDRC

DANAHARTA

DANAMODAL

BANKSPECIAL FUNDS

COMPLEMENTARY ROLESCOMPLEMENTARY ROLES

Coordination of activities undertaken by aSteering Committee in Bank Negara Malaysia

Restructure debt

New loans

Rehabilitate

Inject Capital

Cash

Bonds

Bonds

Sell NPLs

New lloans/

Restructure distressed loans

Facilitate restructuring where necessary

DANAHARTA:DANAHARTA:ROLE & ORGANISATIONROLE & ORGANISATION

THE AMC CONTINUUMTHE AMC CONTINUUM

• Neither a rapid disposition agency nor a warehouse agency - DANAHARTA is an NPL RESOLUTION AGENCYNPL RESOLUTION AGENCY

• Need to manage logistics and allow for case-by-case resolution

• The number of accounts >RM5 million is small (approximately 3,000 accounts)

Asset ManagementCompany

Rapid DispositionAgency

WarehouseAgency

Types of AMCs

DANAHARTA’S OBJECTIVESDANAHARTA’S OBJECTIVES

• Remove non-performing loan (NPL) distractions

• Maximise recovery value of acquired assets

FUNDAMENTAL PRINCIPLESFUNDAMENTAL PRINCIPLES

• System-wide carve-out of NPLs

• Market driven approach

• True asset management company

DANAHARTA’S PROGRESS THROUGH PHASESDANAHARTA’S PROGRESS THROUGH PHASES

ManagementManagementManagementManagementAcquisitionAcquisitionAcquisitionAcquisitionEstablishmentEstablishmentEstablishmentEstablishment

• Objectives• Organisation• Funding• Legislation• Disclosure

Programmes• Professional

Advisers

• Targets• Guidelines• Methodology• Valuation

• Approach• Loan Management

- restructuring- working capital support

• Asset Management- rationalisation- foreclosure- operations &

funding support

June ‘98June ‘98 Sept ‘98Sept ‘98 June ‘99June ‘99 onwardsonwards

GOVERNANCEGOVERNANCE

OversightCommittee

Executive Committee

AuditCommittee

RemunerationCommittee

Board of Directors

Ministry ofFinance

Danaharta was incorporated on 20 June 1998 as a limited liability corporation owned by Government.

The independent Board and management of Danaharta are responsible and accountable for its operations

Chairman (non-executive)

Dato’ Zainal Abidin Putih, Chairman of the Malaysian Accounting Standards Board (MASB)

Managing Director

Dato’ Zukri Samat, former Director of Operations, Danaharta

Three non-executive Directors from the Malaysian community

Dato’ N. Sadasivan, former Director-General of Malaysian Industrial Development Authority

Dato’ Abdul Hamidy Hafiz, President/CEO, Affin Bank Berhad

Dato’ Abd. Wahab Maskan, Group CEO, Kumpulan Guthrie Berhad

Two non-executive Directors from the international community

Mr David Moir, non-executive Director of Standard Chartered Bank plc

Mr Alister Maitland, former Managing Director and Director of ANZ Banking Group

Two non-executive Directors representing the Government of Malaysia

Datin Husniarti Tamin, Deputy Secretary General for Systems and Control, Ministry of Finance

Dato’ Salleh Harun, Deputy Governor of Bank Negara Malaysia (Central Bank)

CORPORATE INFORMATIONCORPORATE INFORMATION

THE DANAHARTA ACT 1998THE DANAHARTA ACT 1998

Main principles:

• Ability to acquire NPLs

• Ability to manage

• Ability to foreclose (National Land Code)


Ability to acquire NPLs:

• Statutory vesting process

• Steps into the shoes of the selling institution

• Clear title -vs- clean title

• Third party claims preserved


Ability to manage NPLs:

• Special Administrators are appointed with consent of Oversight Committee

• 12-month moratorium on claims

• SA takes over control and management of company

• SA workout proposal reviewed by Independent Adviser

• Approval by secured creditors

APPOINTMENT OF SPECIAL ADMINISTRATORSAPPOINTMENT OF SPECIAL ADMINISTRATORS

• Appointment of SAs can be made only if Danaharta is satisfied that :-

– Borrower is unable or is likely to be unable to pay its debts;

– The survival of the Borrower as a going concern is threatened; or

– A formal restructuring of the debts of the Borrower would be more advantageous than a winding-up.

• All appointments of SAs must be approved by the Oversight Committee

Affected

Person

SAs

•Further injection of capital•White Knight

•Valuations•Compensation

Proposal

THE APPROACH TO THE APPOINTMENT OF SAsTHE APPROACH TO THE APPOINTMENT OF SAs

Consolidation & Value

Maximization

Business Continues on Restructured

Balance Sheet

SAs AppointedReviews FinancialsAssesses Viability

Takes Control & Issues Notices

SPECIAL ADMINISTRATORS APPOINTEDSPECIAL ADMINISTRATORS APPOINTED

• As at 18 February 2004, Danaharta had appointed SAs across 72 groups (123 companies) of companies, with 33 groups of companies still at various stages of special administration. There are 6 stages of Special Administration :

No. of Companies

1) SAs discharged 80

2) Workout proposal implemented, SAs pending discharge 12

3) Workout proposal approved by authorities, being implemented 16

4) Workout proposal submitted to authorities, awaiting approval 0

5) Workout proposal approved by secured creditors, pending

submission to authorities 0

6) Special Administrators appointed, pending preparation of

workout proposal 15


Ability to foreclose on property collateral

(15th Schedule of National Land Code):

•Protection of property

•Foreclosure through private treaty sale

•Need to give 30 days notice to borrowers

•Bypass court auction process

•Transparent and market-driven process

TRANSPARENCY AND DISCLOSURETRANSPARENCY AND DISCLOSURE

• Committed to transparency in its operations

• Disclosure via:– publication of business plan / guidelines

– half yearly operational reports

– frequent media and analyst updates, e.g. press releases

– parliamentary replies

– annual reports / special reports

– announcements required under the Danaharta Act, e.g. public notices on the appointments of Special Administrators and Independent Advisors

– active website

ACQUISITION PHASEACQUISITION PHASE

MECHANISMSMECHANISMS

• NPL > RM5 million (gross value)

• Market value determined by professional valuers

• Secured loans are valued according to collateral value

• Unsecured loans are acquired at 10% of outstanding loan

• Profit sharing - 20 (Danaharta) : 80 (FI)

ACQUISITION APPROACH :ACQUISITION APPROACH :PAYMENT FOR NPLsPAYMENT FOR NPLs

FIs receive bonds as consideration for the purchase ofNPLs except non-BAFIA FIs and Islamic facilities which require cash

Characteristics of the bonds- Government-guaranteed; zero risk weighted- Tenure of 5 years, renewable for up to another 5 years- Zero coupon- Price (Malaysian Govt. Securities as benchmark);

tradable; issued over time

Benefits of bonds- provides income- improves Capital Adequacy Ratio- provides liquidity

MANAGEMENT PHASEMANAGEMENT PHASE

MANAGEMENT APPROACHMANAGEMENT APPROACH

Management of Management of SecuritiesSecurities

VALUE VALUE ENHANCEMENTENHANCEMENT

RecoverRecoveryy Management of Management of

AssetsAssets•

propertyproperty

•businessbusiness

VALUE ENHANCEMENTVALUE ENHANCEMENT

S A L E T O M A R K E TS A L E T O M A R K E T

YesYesYesYes YesYesYesYesNoNoNoNo NoNoNoNo

Loan ManagementLoan Management Asset ManagementAsset ManagementNPLsNPLs

VIABLE LOANSVIABLE LOANS NON-VIABLE LOANSNON-VIABLE LOANS FOREIGN LOAN ASSETSFOREIGN LOAN ASSETS

ASSET RESTRUCTURINGASSET RESTRUCTURINGSale of collateral

•foreclosure•R&M

•liquidationSale of Business

•SAvia BID PROCESS

LOAN DISPOSALLOAN DISPOSAL

Sale of Loanvia

BID PROCESS

LOAN RESTRUCTURINGLOAN RESTRUCTURINGInformal

•rescheduling•redemption•settlement

Formal•s.176

•SA

RecoveryRecovery

LOAN MANAGEMENTLOAN MANAGEMENT- Loan Restructuring- Loan Restructuring

• Viable loans are restructured using Danaharta’s published

Loan Restructuring Principles and Guidelines

• Guidelines based on following objectives:

– to maximise the overall recovery value and return to Danaharta

– to minimise the involvement of taxpayers’ money

– to ensure fair treatment of all stakeholders

– to utilise where appropriate Danaharta’s special powers to leverage and benefit the banking system as a whole

Loan Restructuring PrinciplesLoan Restructuring Principles

• Shareholders take a proportionately larger haircut than creditors

• Fair treatment to secured and unsecured creditors

• No dilution of inadequate security

• Only one opportunity given

• Make borrowers work for lenders

LOAN MANAGEMENTLOAN MANAGEMENT- Asset Restructuring- Asset Restructuring

• Involves sale of business or collateral

• Apply principles of competitive bidding, preservation and enhancement of value of business or collateral

• Orderly disposition through transparent process

PROGRESS OF DANAHARTAPROGRESS OF DANAHARTA

Receive share capital from Government

Receive share capital from Government

Acquire NPLsAcquire NPLs

Determine recovery strategiesDetermine recovery strategies

Implement recovery strategiesImplement recovery strategies

TIMELINETIMELINE

Receive cash Receive cashReceive non-cash assets - securities,

properties and restructured loans

Receive non-cash assets - securities, properties and restructured loans

Convert to cash/ residual assetsConvert to cash/ residual assets

Cash/ residual assetsCash/ residual assets

Distribute to Government/ surplus recovery to respective financial institutions

Distribute to Government/ surplus recovery to respective financial institutions

Redeem bonds. Any shortfall will be borne by GovernmentRedeem bonds. Any shortfall will be borne by Government

NPL PortfolioNPL Portfolio

Receive NPLs to be managedReceive NPLs to be managed

Issue Government- guaranteed bonds

Issue Government- guaranteed bonds

June 1998 - March 2000

Sep 1998 - Dec 2001

Nov 1998 - Sep 2002

1999 - 2005

31 Dec 2003 - 31 March 2005

End 2000 - 2005

NPL PORTFOLIONPL PORTFOLIO

Type of NPL RM billion(LRA)

Acquired 19.73

Managed 27.97

Danaharta’s Portfolio 47.70

Note: 'LRA' = Loan Rights AcquiredRM1 = USD0.263

Number of borrowers involved : 2,564

DANAHARTA’S EXPECTED RECOVERY DANAHARTA’S EXPECTED RECOVERY RATERATE

Recovery method

*Adjusted LRA(RM billion)

(a)

^Adjusted expected recovery

(RM billion)(b)

Expectedrecovery rate

(%)(c)=(b)/(a)

Plain loanrestructuring

7.63 6.11 80%

Settlement 9.37 7.59 81%

Schemes ofarrangement

9.77 7.19 74%

Schemes under SAs 5.32 2.24 42%

Foreclosure 14.36 4.86 34%

Others 4.74 2.64 56%

Legal action 1.25 - -

Overall 52.44 30.63 58%

* Comprising total LRA of RM47.70 billion and accrued interest of RM4.74 billion ^ Assuming zero recovery on defaulted cases as at 31 December 2003

Note: RM1 = USD0.263

Soft Soft approach approach

(viable (viable loans)loans)HardHard

approachapproach (non-viable (non-viable

loans)loans)

Acquired NPLs49%

Managed NPLs66%

ALL NPLs reviewed and recovery strategies identifiedALL NPLs reviewed and recovery strategies identified

ANALYSIS OF RECOVERY PROCEEDSANALYSIS OF RECOVERY PROCEEDSBY ASSET GROUP (BY ASSET GROUP (as at 31 December 2003)

# Expected recovery does not include interest or adjustments due to gains or losses arising from the recovery process. * Default rate is 3.2% Note: RM1 = USD0.263

Asset group(RM billion)

Expectedrecovery#

Defaulted* Expectedrecovery net

default

Pendingimplementation

of recoverystrategy

Recoveryreceived

(a) (b) (c) = (a) - (b) (d) (e) = (c) - (d)

Non-foreclosures

10.99 0.07 10.92 5.32 5.60

CashForeclosures 4.67 0.01 4.66 0.65 4.01

Restructured loans 9.35 0.93 8.42 0.60 7.82

Securities 5.20 - 5.20 1.45 3.75

Properties 1.43 - 1.43 0.21 1.22

Total 31.64 1.01 30.63 8.23 22.40

767 borrowers have fully settled RM14.58 bil (LRA) of NPLs,relating to 881 accounts

ANALYSIS OF THE CONVERSION OFANALYSIS OF THE CONVERSION OFNON-CASH ASSETS RECEIVED as at 31 December 2003NON-CASH ASSETS RECEIVED as at 31 December 2003

Recoveryreceived

Stock Realised incash

Asset group(RM billion)

(e) (f) ( g) = (e) - (f)

Non-foreclosures 5.60 - 5.60

Cash

Foreclosures 4.01 1.24# 2.77

Restructured loans 7.82 2.17 5.65

Securities 3.75 2.15 1.60

Properties 1.22 0.68 0.54

Total 22.40 6.24 16.16

# Includes foreclosed properties or shares which are unsold or pending inclusion into future tenders


ANALYSIS OF RECOVERY PROCEEDSANALYSIS OF RECOVERY PROCEEDSTotal cash received as at 31 December 2003Total cash received as at 31 December 2003

RM billion

Cash from recovery proceeds 16.16

Adjustments:

Comprised primarily interest received

on restructured loans and gains or

losses from sale of foreclosed property

and securities collateral 2.88

TOTAL CASH RECEIVED (as at 31 December 2003) 19.04

Acquired loansRM6.08 bil

Managed loansRM12.96 bil


DISTRIBUTION OFDISTRIBUTION OFRECOVERY PROCEEDS RECOVERY PROCEEDS

as at 31 December 2003as at 31 December 2003

DistributionCash

(RM billion)Securities

(units)

Gross recovery proceeds for loans under management-NPLs of BBMB Group and Sime Bank Group

12.96 -

Surplus recovery from acquired loans, distributed to 36 financial institutions

0.43 66,472,341

Total distributed recovery 13.39 66,472,341


SUMMARY OF CASH STATEMENTSUMMARY OF CASH STATEMENTas at 31 December 2003as at 31 December 2003

RM billion

Total cash realised from recovery proceeds 19.04Add:

1. Capital received 3.002. Long-term loans 1.303. Other inflows - including, amongst others, interest received on

deposits and placements2.20

Total inflow 25.54Less:

1. Bond Redemption 2.602. Total surplus recovery, distributed to financial institutions under

profit sharing arrangement0.40

3. Total net cash distributed / to be distributed for recovery of loansfrom Sime Bank Group and BBMB Group

11.55

4. Other outflows - including, amongst others, cash paid for NPLacquisition, repayment of loans, operational costs

5.07

Total outflow 19.62

TOTAL CASH AND CASH EQUIVALENTS AVAILABLEAS AT 31 DECEMBER 2003

5.92

STATUS OF DANAHARTA BONDSas at 31 December 2003

Date of issueFace value(RM billion)

Price forevery

RM100.00in facevalue

YieldPresent valueat issue date

RM billionDate of Maturity Status

20 November 1998 1.022 69.832 7.150% 0.713 31 December 2003 Redeemed30 December 1998 1.580 72.012 6.672% 1.138 31 December 2003 Redeemed29 January 1999 1.105 71.301 6.654% 0.788 31 March 200426 February 1999 1.242 72.296 6.475% 0.898 31 March 200426 March 1999 1.393 72.758 6.445% 1.014 31 March 200429 April 1999 1.050 75.584 5.487% 0.793 30 June 200427 May 1999 0.511 76.229 5.400% 0.390 30 June 200429 June 1999 0.744 76.862 5.330% 0.572 30 June 200429 July 1999 0.527 76.223 5.319% 0.402 30 September 200426 August 1999 0.204 73.585 6.111% 0.150 30 September 200429 October 1999 0.575 76.365 5.283% 0.439 31 December 200429 December 1999 0.392 77.363 5.194% 0.303 31 December 200431 January 2000 0.162 77.244 5.063% 0.125 31 March 200529 February 2000 0.305 77.697 5.025% 0.237 31 March 200531 March 2000 0.328 77.494 5.165% 0.255 31 March 2005Total bonds issued 11.140 8.217

Less: Adjustments (0.483)

Redemption (2.602)

Total bonds not heldby Danaharta as at31 December 2003

8.055


Factors which aid Danaharta’s progress

(4) Private sector driven

(6) NPL resolution, not NPL disposal

(3) Concentrate on larger sized NPLs

(2,000-3,000 accounts)

(5) Clear thought-out process

(1) International precedents

(2) Legal powers under the Danaharta Act 1998

Information on Danaharta can be found at Information on Danaharta can be found at www.danaharta.com.mywww.danaharta.com.my

pengurusan danaharta nasional berhad malaysia

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