Wed 10/28/2020 07:51 AM
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Oon & Bazul LLP, the legal advisor to PT Modernland Realty Tbk (MDLN), in an affidavit filed on Oct. 23 referencing a second affidavit (undated) filed by MDLN president director William Honoris, both seen by Reorg, states that the company intends to propose a pre-pack scheme of arrangement to the holders of its $150 million 10.75% notes due Aug. 2021.

Honoris, in his affidavit, requests a four-month moratorium and the reservation of rights to extend this further as necessary. Honoris reiterates in the affidavit that the company is committed to, and is appropriately invested in, achieving a consensual restructuring of the notes. Continue reading for the Asia Core Credit team's analysis of PT Modernland Realty's preliminary restructuring proposal, and request a trial to access reporting and analysis on hundreds of other restructuring situations. 

A representative for MDLN did not immediately respond to Reorg’s emailed request for comment.

Proposed Scheme of Arrangement

The affidavit states the outline of the proposed scheme of arrangement as follows:

  • Managed sale of non-core landbank assets, to be determined;

  • Reduction in coupon to align with deteriorated market conditions, with such adjusted coupon to be paid both in cash from available cash flow and as payment-in-kind (PIK) once operational cash flows permit; and

  • Extension of the tenor of the due 2021 notes by 3 to 5 years


In an earlier analysis, Reorg modeled a scenario for the due 2021 notes to be extended by 3 years with a reduction in the cash coupon, plus a PIK component. A live Excel model can be found on Reorg’s analysis page.

See Reorg’s tear sheet for MDLN’s landbank assets HERE.

The restructuring of the $240 million 6.95% guaranteed senior notes due 2024 is anticipated to be on substantially the same indicative terms, according to the affidavit.

Access to Data Room

The affidavit states that access to the data room (containing the relevant document and information) was duly granted to Baker & Mckenzie and AJCapital Advisory Pte Limited on Oct. 23 following the signing of a non-disclosure agreement. The Honoris affidavit states that Borrelli Walsh believes such information is fully responsive to AJCapital’s requests for information as delivered on Sept. 29, and will be sufficient for evaluating the company’s current financial and business conditions.

AJCapital acts as financial advisor for certain noteholders comprising Blackrock (Singapore) Limited, Eastspring Investments (Singapore) Limited and Lombard Odier (Singapore) Limited in connection with the consensual restructuring discussions, according to the affidavit.

Restructuring Proposal Delayed

Modernland’s restructuring proposal - which was originally due by the end of September and was further pushed back to the end of October - is now likely to be sent to the noteholders no later than by Nov. 21, Honoris’ affidavit states.

The Honoris affidavit states that Borrelli Walsh’s work has been substantially impeded by the Covid-19 linked restrictions in Indonesia (called PSBB), which have prevented physical meetings and slowed the progress of the restructuring proposal.

“More time is required to put together a detailed restructuring proposal for the Noteholders’ consideration due to the complexity of the Group’s assets and operations, and the need to confirm the Group’s long term (10-year) development plan and the noncore landbank assets to be sold,” the affidavit states.

“In particular, a determination of the specific assets which can be sold to repay the notes would affect the Group’s remaining assets that can be developed to generate future earnings (emphasis added). This analysis is critical for the development of the restructuring proposal, and in this respect, Borrelli Walsh’s work is currently ongoing and expected to be finalised in the coming weeks,” the affidavit states.

The affidavit shows that Borrelli Walsh has undertaken the following in relation to the restructuring proposal:

  • Prepared a short-term cash flow forecast up to Dec. 31, which confirms that the group has the necessary funds to maintain its operations;

  • Completed an analysis of the group’s historical financial performance since 2012, including a detailed historical project contribution analysis;

  • Undertaken the preliminary preparation of a 10-year forecast model; and

  • Worked with the group’s management to finalise the group’s 10-year development plan and confirm the specific non-core assets which are to be sold for the benefit of the noteholders.


Working Capital

With regard to working capital, Honoris - while noting the noteholders’ position that the company would have to raise additional working capital - states in the affidavit that the company does not currently require additional working capital and that the company and its advisor Borrelli Walsh are preparing the restructuring proposal on the basis that the company has or will be able to generate sufficient cash reserves to support its restructuring proposal.

PKPU

The affidavit states that MDLN will require extra-territorial moratorium relief due to its exposures in Indonesia and the risk of noteholders commencing PKPU proceedings in Indonesia against MDLN.

Honoris further states in his affidavit that the represented noteholders are concerned that they may be disadvantaged by an extra-territorial moratorium in respect of MDLN and further clarifies that the extra-territorial moratorium will restrain the represented noteholders from reacting to a PKPU proceeding commenced against MDLN in Indonesia, either by the company itself or by any other party.

Therefore, in the affidavit, Honoris requests the court to grant a carve-out from the moratorium for noteholders to commence PKPU proceedings in Indonesia (emphasis added) solely in the event that the company or any other third party commences the above mentioned PKPU proceedings.

The affidavit shows Honoris stating that he believes the carve out from the moratorium sufficiently addresses the concerns raised by the holders of the due 2021 notes (referencing a previous affidavit filed by Luke Furler of AJCapital on Oct. 19).

In the event that PKPU proceedings are commenced by MDLN or any other third party, the holders of the notes due 2021 will have the ability to commence their own parallel PKPU proceedings in Indonesia and protect their interests, Honoris’ affidavit states.

The Singapore High Court is scheduled to hear the company’s moratorium plea at 2:30 p.m. SGT on Oct. 29, with regard to the restructuring of its $150 million 10.75% notes due Aug. 2021, as reported.

The case number is HC/OS 959/2020 for JGC Ventures Pte. Ltd. (issuer of the notes due 2021), HC/OS 960/2020 for PT Modernland Realty Tbk and HC/OS 962/2020 for MDLN Holdings Pte. Ltd, as reported .

See Reorg’s legal analysis of MDLN’s restructuring HERE.

MDLN’s capital structure is as below.

Click HERE to enlarge

-- Nidhi Pandurangi
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