IFLR Southeast Asia Forum 2016 - Key Takeaways

June 2 2016 - Fairmont Singapore



Enforcement and managing disputes

  • Mediation is not adversarial and is a gentler way of resolving disputes, meaning parties can preserve relationships even in the face of a dispute with settlements often reached within a day
  • There has been growing recognition in Singapore in recent years of the value of alternative dispute resolution (ADR) methods. Courts encourage disputants to think of ADR as a first-stop option and they will take any unreasonable refusal of ADR into consideration – which is a major deterrent
  • The proposed Mediation Act is intended to strengthen the overall framework of mediation and to provide certainty for mediation users where their legal position will not differ from jurisdiction to jurisdiction
  • The Singapore Mediation Centre (SMC) has handled over 2700 cases with a total worth of SGD3.3 billion and the highest amount recorded in one single case is over SGD200 million. Over 90% of their cases are settled within a day
  • If mediation is successful, the mediator’s settlement agreement can be recorded as a consent arbitral award and it can be internationally enforceable under the New York Convention, making mediation an attractive proposition even for international cases
  • Judges in a number of jurisdictions are increasingly questioning whether the balance between different dispute resolution mechanisms is right, and whether or not the development of the law is being stymied by the popularity of arbitration and concerns about the key commercial cases going off to arbitration rather than coming to the courts.

Vietnam: investment trends and updates

  • For the first five months of this year, the total amount of foreign investment recorded has reached over VND10.2 billion, registering a 150% increase from the same period last year. The investment has come from Japan, Korea, Singapore and Luxembourg, covering a wide variety of industries
  • Foreign ownership has been partially liberalised since 2015 with the Vietnamese government lifting the foreign ownership cap of 49% imposed on domestic listed companies and other public companies
  • In general, all public companies can now have foreign ownership of up to 100%, but there are other restrictions. One of the main restrictions is if a company operates in a sector subject to foreign ownership cap under WTO commitments or other bilateral agreements, then that cap will still apply
  • The government issued new regulations a few months ago to liberalise the state-owned airports by allowing, among other things, foreign investment into the airport sector with a 30% cap
  • Laws have been relaxed to allow foreign individuals holding an entry visa to own residential properties in Vietnam, and to lease them to other people
  • Under the new law a developer – even if foreign-owned –can now be allocated land use rights, thereby exempt from any additional obligations to the state if selling property to private owners
  • The requirement to establish a foreign company in Vietnam has been relaxed substantially. What used to take a year and a half to complete the registration and appoint a legal representative can now be done in four weeks.

M&A and private equity updates

  • There is a big disconnect between IPO activity and M&A activity: very little IPO, a lot of M&A
  • In Indonesia, most of the drive is from private equity funds and while there is a great deal of competition, there aren’t many good deals. Funds end up spending a lot of time looking for deals
  • Southeast Asia has long been deemed by foreign investors very expensive to invest in, especially in the real estate and stock market space, but prices and valuations are being rationalised with the expectations of buyer and seller narrowing
  • Many governments across the region are helping to mitigate some of the perceived risks felt by people entering the Southeast Asia market for the first time
  • The challenge facing many foreign investors in the region remains the exit. Instead of seeking an exit route through IPO, many investors have turned to alternative forms of capital
  • When structuring a deal in this region, it is important for foreign investors to have all the proper exit clauses. But, with invisible red-tape in some regional jurisdictions, it remains difficult for investors to predict when and if regulatory approval will be granted.

Why compliance adds value

  • Smart compliance is the way forward as data collection allows one to zero in on the individual(s) within the corporation that are causing control issues
  • It is important to have a data chart in place, instead of just having a low-level person deal with complaints. That helps keep all informed of trends within the corporation that may need fixing
  • Both the compliance and the business people within an organisation need to add value to compliance by seeing themselves as decision-makers and shapers internally, rather than automatically dismissing new rules as something unachievable
  • The recent money laundering case involving the Singapore branch of Swiss BSI marks the first time in more than 30 years that Singapore’s monetary authority has closed down a bank in the country. The case is also an example in which management has overridden compliance and condoned egregious activities within the bank.

Indonesia: a foreign investment outlook

  • The latest PwC survey of 800 CEOs and industry leaders across 52 nations put Indonesia in second position after China for top investment destination
  • Bad loans and weak demand are hurting the outlook for Indonesian banks’ loan growth amid financial authorities pushing for a more affordable lending rate
  • The growing volume of non-performing loans (NPLs) has presented itself as an opportunity under the current market conditions affected by falling commodity prices. Now is the time for special situation funds to invest in NPLs
  • Foreign investors are now looking for horizontal integration by seeking opportunities to work with domestic players. Chinese investors in particular have shown a lot of interest in commodities and the acquisition of rubber-processing companies in Indonesia
  • Many Korean and Japanese banks have in recent years tried to buy out local banks, but valuation is always a problem as the owner always wants three times more than the current price
  • Investors from Scandinavia have come on board in recent years as the most avid buyers of consumption-driven assets in Indonesia, such as those in the healthcare sector.

High-yield bonds and capital market updates

  • Key reasons behind the lack of appetite for masala bonds are pricing expectations: issuers were unrealistic about the interest they could command in the offshore market
  • Hedging is also an issue as its costs and risks have been either unacceptable or challenging to offshore investors
  • There is a growing understanding in countries across the region that they need to open up and deepen domestic debt markets, and end reliance on the EU or the US for liquidity
  • There is an entrenched desire among jurisdictions across the region to not let go of capital controls and regulatory restrictions. There is a need for governments in the region to step back and let markets develop on their own
  • The problem facing emerging markets in the region is the continued presence of implicit government support, with the market expecting the government to intervene in distressed times, resulting in banks and hedge funds – both the buy and sellside – not being able to price an asset accurately
  • Deals are often put on hold in emerging markets across the region because many don’t know how to price them
  • The rule of law is only part of the game, and has often been blamed for many failed deals across the region. But transparency is even more important and its absence has contributed to the uncertainty felt by foreign investors.

Data privacy: protecting your company and regulatory concerns

  • People are less sceptical about the benefits of the crowd from an economic and efficiency standpoint, but where their concern lies is whether they can move to the cloud and continue to maintain their Privacy Act obligations
  • Often by the virtue of trying to generate the benefits of the economy of scale, data centres won’t be located in one country, and therefore the definition of cloud computing will require a degree of offshoring
  • Overwhelmingly, there are still huge perception barriers to the adoption of cloud computing because many think the cloud cannot be moved, as it involves the offshoring of data
  • Most privacy regimes have had the concept of a cross-border data provision in place, which are essentially provisions within the realm of a privacy law, enabling one to move personally identifiable information outside of the country
  • Many are concerned about privacy and data security purely because more data exists than ever before.





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