KUALA LUMPUR – It is an opportune time for businesses seeking corporate restructuring to embark on a debt-for-sustainability swap to spur recovery, as it would offer companies an avenue to address corporate debt challenges while increasingly focus on sustainability.
AmBank Research, in its Thematic report today, stated that a post-Covid-19 world would no doubt look different in many ways, with an emphasis on sustainability as recovery continues.
Therefore, to survive and thrive in a post-Covid-19 environment, companies need to implement long-term sustainability strategies that allow them to capture new opportunities, broaden their horizon and shape their post-pandemic future, as in this new normal environment, survival alone is not enough.
“In pursuing the debt-for-sustainability swap in the context of corporate debt restructuring, an option is to have a government-sponsored corporate debt restructuring fund.
“This corporate debt restructuring fund would buy from the banks all non-performing loans from viable firms. The fund and firms would then exchange the loans at a prearranged discount from the purchase value of the debt with a new loan based on sustainability compliance in the firms’ operations or supply chains,” it said in the report.
However, in this option, the research firm said it is important for the government to take into consideration of its fiscal space, limitations, as well as debt sustainability concerns, more so with the record spending over the past few months.
Another alternative would be a well-designed approach that would leverage bilateral and multilateral development finance institutions, private investors and private equity funds. It is to reduce the use of limited government financial resources.
“In both scenarios, it could be done through a sustainability-linked loan (with measurable performance targets), a transition loan (supporting green business practices) or other green instruments (such as green bonds).
“In designing the debt-for-sustainability swap framework, it is important for the government to set objectives that will enable a timely restructuring of debt and access to sustainability financing for viable firms.
“The government should also facilitate the exit of non-viable businesses to avoid the rise of ‘zombie’ firms,” said AmBank Research.
However, identifying which firms are viable in the long run is no easy task, it said, adding that the government should work closely with banks, which are experienced in carrying out such assessments to gather detailed data on firms and sectors. – Bernama, November 18, 2020
