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Wong & Partners' Corporate and Debt Restructuring Seminar - Case Study

Background
ABC Berhad is a public listed entity ("Listco"), listed on Bursa Malaysia engaged in a broad range of
diversified businesses. It expanded rapidly in the early 90s and its business interests range from
plantations to poultry breeding and highway concessions. Listco is controlled by the Chin Family with
a substantial 40% block of Listco is owned by the family holding company ("Family Holdco"). It is
rumored that there are other shareholders holding up to 20% of Listco who are "friendly" to the Chin
Family.
Due to the low interest rate environment, Listco went on a credit binge and has expanded very
aggressively. Its corporate structure is now just as disorganised, with a plantation division parked
within Listco and a range of other businesses in 13 subsidiaries.
One of these entities is a public company ("Public Co") due to an Initial Public Offering ("IPO")
exercise which was pulled last year due to poor economic conditions and equity markets. It still has a
number of shareholders including a private equity fund which had invested into Public Co several
years ago and which was planning to exit its investment through the IPO. The private equity fund is
frustrated at its inability to exit and the lack of a viable play book by the Chin Family for Public Co.
Another subsidiary is in the poultry breeding business ("Poultry Co") and is a joint venture company
with a Brazilian Multinational company to which the subsidiary also supplies to. Poultry Co in turn
has a number of subsidiaries in the poultry business involved in the manufacturing of chicken food
products, manufacturing and distribution of animal feed as well as retail supermarkets distributing
their products.
Yet another subsidiary holds a highway concession business ("Highway Co"). Highway Co was also
very aggressive in expanding its business in the last decade and had acquired a broad range of support
services through M&A transactions and owns a myriad of entities engaged in various businesses,
namely highway patrol, roadside assistance, planting, and road and facilities maintenance. Highway
Co and its subsidiaries generate a constant steady income stream on account of a generous Concession
Agreement signed several years ago.
20%
Other
Shareholders

PE
Fund

Friendly
Shareholders

Family
Holdco

10%
20%

50%
Public Co

40%

40%

Listco
(Plantations)

Brazilian
Shareholder
49%

20%

Public
Shareholders

100%

51%

100%

Highway Co

Poultry Co

Miscellaneous

100%
100%
Highway
Patrol

Food
Manufacturing

Animal Feed
Manufacturing
& Distribution

Roadside
Assistance

Retail
Supermarket

Planting

Road
Maintenance

Fact Pattern
1.

Poultry Co

Mr. Chin wants to dispose of the poultry business. He increasingly feels that this is an outlier of a business
within Listco and is also tiring of the increased costs which depresses already low margins. He is looking to sell
the poultry group of companies but wants to take advantage of the generous tax losses in some of the
entities. The Brazilian shareholder is open to increasing its stake.
2.

Listco

There is disharmony in the extended Chin Family with several family members having a myriad of ideas of
what the Listco should be doing. One of the options the domineering patriarch wants to consider is to reduce his
stake in Public Co and to raise cash to put towards taking out some of the businesses in the subsidiary level. He
is considering using Family Holdco to sell down 20% in Listco to his long time Indonesian business associate
with the idea that they enter into a shareholders agreement to protect their joint combined interests in Listco. Mr.
Chin has asked Public Co to put together a data room and Information Memorandum for this purpose.
3.

Highway Co

Management wants to consolidate the numerous subsidiaries sitting beneath Highway Co. Management
complains that the maintenance costs of these subsidiaries is adding to the cost burden and also duplicates
headcount and back-office functions. They want to consolidate the businesses into a more streamlined structure
which they argue will also facilitate M&A opportunities.
4.

Public Co

The Private Equity shareholder ("Fund") in Public Co is pushing Mr. Chin to proceed with the IPO. The Fund
sees upside given its low investment costs and believes the equity markets will turn by the time the listing
happens. Mr. Chin does not agree and is frustrated with the arrogance of the Fund. Relations between Family
Holdco/Mr. Chin and the Fund, have broken down. Mr. Chin is looking to dilute the Funds shareholding and
influence, through a combination of a new share issuance, a conversion of preference shares which Family
Holdco holds and capitalisation of some debt which Family Holdco had extended to the company. He is also
seeking advice to determine if he can issue new shares with preferential redemption rights to extract profits
from the company.
5.

Miscellaneous entity and Management Buy Out

There is a subsidiary engaged in the fertilizer distribution business which has been long-neglected by the
Family. The Management in that entity has been waiting for an opportune time to buy out the business/shares of
this entity and has found a private equity backer. It is not clear if the buy-out proposal is viable as the business is
heavily leveraged but equally attractive with strong assets base in the form of long term distribution contracts
with major plantation companies and a large distribution plant sitting on a large piece of industrial land in
Selangor. The private equity backer is also insistent that the Company pays a bonus to the key management to
stay on in the business as it needs continuity in management.
6.

Debt issues

A lot of debt was taken on by Listco and its group of companies on account of Listco's expansion into various
businesses over the years. Debt was also used extensively to develop the Group's capital intensive and slow
gestation plantation business. A majority of the debt is spread evenly within the group with equity investments
debt incurred at Listco while capex/working capital debt are incurred at the relevant operating subsidiaries.
Given the trying economic conditions over the last few years, Listco and a majority of its subsidiaries are now
creaking under a weight of debt (including US Dollar bonds) which it is having difficulty in servicing. Large
principal repayments are due within several entities across the group within the next six months and the Chin
Family is worried whether Listco and its group will be able to meet its obligations.