JAKARTA INITIATIVE TASK FORCE
Maximizing Value of Distressed Assets,
A Public Policy Perspective
OECD Forum for Asian
Insolvency Reform
Seoul - November 10, 2003
A.
Background.
• Asian financial crisis has resulted in
large numbers of distressed assets.
• Many have been restructured, but
policy issues remain.
• Key issue: what role should the public
sector play in affecting value of
distressed assets.
B.
Whose Asset-Value Should be
Maximized?
• Original Owners
– interested in holding on to corporate assets
– benefit from policies which make it more difficult to seize control
• Lenders (original and secondary market)
– interested in seizing and selling assets into an organized market
– benefit from policies which make it easier to seize and transfer
control
• Government and People
– government interested in maximizing recovery
– citizenry interested in long term economic health
C. Government Must Maximize
Benefit to Citizens
• In event of conflicts of interest in evaluating
public policy, government must maximize welfare
of its own citizens
• Not controversial, but debate arises where lenders
and original corporate owners attempt to align
their interests with those of the citizenry
• Argument frequently pits advocates of investment
against those arguing for a nationalistic approach
D.
What is the Public Sector's Interest?
• Asset values directly impact government revenue
to the extent it owns distressed assets.
• Government has interest in seeing efficient market
mechanism whereby corporate assets are recycled
• Tension frequently encountered in determining
speed of government asset divestment
– fast asset sales send message that corporate assets will
be recycled
– however, divestment at "fire sale" prices will negatively
impact government recovery
E. Long Term Versus Short Term
• Speed of divestment and related policies
concerning transfer of corporate ownership
give rise to timing concerns.
• Radical seizure and divestment by public and
private sector creates instability
• Denying market opportunity to renew and
recycle corporate assets harms long term
growth.
• Solution: maximize long-term growth
consistent with short-term stability.
F.
Cost-Benefit Analysis
• Balancing short and long term requires careful
cost-benefit analysis
• Public sector must consider several factors
– market disruptions in the short term
– government recovery of its own distressed assets
– long term economic health
• Because of essential nature of working market to
recycle corporate assets to maintain credibility,
emphasis should be on long-term economic health
G.
Policy Recommendations
• Maximizing value of distressed assets to the public
requires sound policies to ensure that corporate failure is
punished and new entrepreneurs are given the chance to
improve the corporate sector
• This requires policies encouraging a working insolvency
system and signal from government that it will allow the
market to punish corporate failure.
• NOTE: this is not the same as maximizing the secondary
market value of assets in the hands of lenders. The former
is a long term economic goal while the latter is a shortterm manifestation of public policy.