Restructuring blues

       JUST like in the past financial turmoils, some large corporations are attempting to save themselves from going under by embarking on major restructurings. These companies suffered from the effects of the Covid-19 pandemic, coupled with problems brought about by supply chain bottlenecks, inflation and a general economic malaise.

       The two recent announcements of such restructurings included those by AirAsia X Bhd and Sapura Energy Bhd.

       In both cases, the firms sought and secured the protection of the courts to halt legal proceedings against them by creditors, in order for negotiations to begin.

       To be sure, in both cases, negotiations had been ongoing for some time, considering the huge amount of debt involved.

       The debt restructuring of AirAsia X had been approved by its creditors and the High Court last year that entailed the airline paying back just 0.5% of debt owed.

       Its biggest creditor was Airbus. This week the airline said that it had completed its restructuring, will write back RM33bil in profits in the next quarter and in the next two months will recommence passenger services to more international destinations.

       It also said that the debt restructuring would pave the way for the proposed RM500mil fundraising.

       Earlier this month Sapura Energy Bhd and 22 of its subsidiaries secured court orders to halt legal proceedings from creditors and instead seek meetings with them to consider and approve a proposed scheme of arrangement and compromise as part of a debt restructuring plan.

       Sapura Energy had been receiving winding-up petitions from its vendors claiming a combined sum of RM48.39mil since December 2021. It is left to be seen how Sapura’s restructuring will proceed. It also wouldn’t be surprising if other corporations seek to embark on debt restructurings in these times.

       More withdrawals

       THE option to withdraw cash from accounts was once again granted to Employees Provident Fund (EPF) members. They can withdraw up to a RM10,000 and in a lump sump.

       The ability to prematurely withdraw money from the accounts of EPF members might have been a necessary stop gap measure during the pandemic. But it has been some time since the debilitating effects of pandemic as the economy has fully opened up.

       Job creation is starting in earnest and there are many opportunities for people to secure startup fundings in a recovery period, instead of dipping into their retirement funds.

       The loan moratorium has also helped a lot of people in terms of managing their debt obligations and as many people are no longer opting for that facility, one wonders why should the option to withdraw cash from the EPF accounts be made available. Such flexibility had left many EPF members with little left in their accounts.

       Many have said that the premature withdrawals would create a retirement crisis in Malaysia. While that is true given how so many members have so little left in their accounts, the latest withdrawal scheme is estimated by one investment bank to be between RM40bil and RM50bil.

       That amount will surely jolt the system as the monthly contribution cut by members to 9% from 11% has acted as a fillip to the economy, those did not involve a withdrawal of monies from the EPF.

       This latest withdrawal, as economists like to say ceteris paribus, would mean that the final year end dividend for members will be affected. The EPF had to liquidate more than RM20bil from its better performing foreign investments just to fund the RM101bil withdrawals from previous schemes during the pandemic.

       This time it is expected that it will also do the same and the premature liquidation of performing assets will lower overall returns to members.

       What the withdrawal schemes have shown is that many members will have very low savings in the EPF and whatever amounts they will have in their accounts will likely be insufficient to fund their retirement.

       Maybe it is time for the raiding of the piggy bank to stop. It is naturally going to be the case as many more people would have exhausted their accounts and there should not be a periodical withdrawal opportunity once buffers are rebuilt.

       The EPF is going to deal with its own “crisis” once the demographic dividend disappears after the middle of the next decade when the monthly withdrawals are going to be larger than the money going into the EPF due to our ageing society. We should not be accelerating that process.