Evolving Market Practices in Myanmar for Outstanding Commercial Loans

In this note we discuss the evolving legal and regulatory practices with respect to the pre-existing loan arrangements in light of the cash flow and other challenges faced by some of the borrowers.

Parties can potentially follow different approaches depending on the current status of borrower’s indebtedness. Another important factor is how many lenders a particular borrower has: in cases of multiple lenders, coordinated approaches often brings better results within a more efficient timeframe.

“Standstill” agreements

This arrangement involves multiple lenders of the same borrower at the same time. Generally, all lenders and the borrower will agree not to enforce their loans for a certain period of time.

Often these agreements would also include modifications to financial and other covenants imposed on the borrower to allow for some breathing space for the company during difficult period.

Parties may also provide for revision of repayment schedules, deferral of principal payments etc. 

In some cases, a standstill agreement would also introduce uniformity requirements with which all bilateral loan agreements of the borrower must comply with. In such case, the borrower may be granted a period of time to implement required changes, so that all lenders become on equal footing in terms of the major conditions of their loans.

From local regulatory perspective, if some of the loans are offshore loans, such arrangements in most cases require approval by the Central Bank of Myanmar (“CBM”). Depending on the industry in which the borrower operates, approvals from other authorities may also be required.

In terms of corporate approvals, typically the board of directors of the borrower should approve its entry into the documentation.

As with the majority of other agreements, the borrower typically arranges for stamping the documents by payment of stamp duty adjudicated by the relevant stamp officer.

Extensions

These are simpler exercises usually followed in bilateral loan agreements, where parties would enter into an amendment agreement to the existing loan agreement to revise the repayment schedule.

Restructuring

Some transactions require more complex amendments, and this is what is usually referred to as restructuring.

The scope of amendments is very specific to each individual transaction, and may include:

• Revision of the repayment schedule;
• Changes on the composition of the security package (mortgages, charges, etc.) usually by adding additional assets into the permitter;
• Updates of the covenant package: e.g., granting waivers for breaches of certain financial ratios, coupled with more strict covenants on dividend distributions and other cash-out from the borrower;
• In some cases, additional obligors may be included (e.g., additional members of the borrower’s group may be required to provide their suretyships for the loan).

Given the complexity of introduced amendments the scope of required governmental and corporate approvals needs to be determined on a case-by-case basis.

Loan assignments

In some cases, existing lenders are considering transfers of their loan(s) to another party. This may be driven by a variety of commercial and legal considerations.

From documentation perspective, typically the existing and new lenders will sign a transfer instrument in which they agree on the conditions upon which the loan claim is transferred.

It is also important to analyze the scope of required regulatory approvals, and perfection steps that would be relevant for the security arrangements in such cases.