Shop talk: Ashurst keeps cool as corporate debt restructuring heats up

TXF: Can you introduce yourself and tell us a bit about what you do? 

Jean Woo (JW): I’m a banking partner based in Singapore and I specialise in structured finance. As part of what we do, I get involved in the law of trade and commodity work, which is very topical these days, considering what has (recently) happened in the greater scheme of things.

TXF: What sort of trends and opportunities are you seeing in the market at the moment? 

JW: At this time, it’s very interesting to ask that question, because the WHO just declared a pandemic, President Donald Trump has stopped all flights from Europe and there has just been an oil price crash. So, I guess in terms of trends, there are a lot of people restructuring, distressed debt, for obvious reasons.

What we do see in terms of our global view is that this is certainly a black swan event. A lot of organisations, law firms, professional service providers are now firmly looking at this as a global event. In terms of the coronavirus, we are looking at it starting from China. They were the first in, and all signs are pointing to the fact that they may be first out. However, we look at Europe, the US, the UK; these countries are still now coming into this coronavirus crisis at a later stage. They may be exiting it at a later stage as well. So in terms of how we react and respond to it as a firm, its always just trying to stay abreast in terms of the legal services we offer the clients.

Last year, I think because of the trade war, we provided a lot of advice on sanctions because between the US and China, your sanctions clause could be or will be maybe caught by the trade wars. A funny thing is that, a few months down the road, people are not quite talking as much about it. You’re now looking at the force majeure clauses, you’re looking at the MAC (material adverse change) clause. Is this going to be an event that triggers these provisions? For us, as a legal service provider, we have to be able to offer structuring and advice of this nature to clients.

TXF: And are there any other major headwinds that you’re facing at the moment? 

JW: Yes. I wouldn’t say headwinds. We are trying to survive an absolute storm at the moment, each day and each week. It’s a different challenge. Coronavirus is a health event that has become an economic event, which has now become a real crisis worldwide. So I don’t think, if you look at the global industry, any industry is left untouched. Every single industry, in every single country, is being affected by it. So, as I said in the beginning, it’s hardly a headwind, but a full-blown storm at the moment.

TXF: Many commodity-linked corporates which have been known for very unsustainable operations in the past are now closing sustainability-tied deals. Do you think there is any real substance to this, or is it just a case of greenwashing? 

JW: I do think that there is some substance to it, but it’s all sector based. In this part of the world, Singapore or Southeast Asia, you do see more soft commodities firms trending towards that direction and there have been a number of deals in this respect. So, yes, will be the answer. It is not greenwashing for them. I feel that these are very encouraging signs, because sustainability is all about aspirations.

You set KPIs on your ESG targets and you work towards it. You ask a very interesting question, is it greenwashing? The good thing is there is a whole range on the spectrum. You offer a margin reduction depending on whether you meet your KPIs. It’s self-regulating at the moment. But I think the standard is getting higher and higher and higher. You see the EU taxonomy being introduced. That sets a very high bar on the classification of what is being regarded as environmentally sustainable.

From my perspective, the word ‘greenwashing’ will be something that banks would be very wary of because there is a reputational risk in getting involved in this sort of transaction or arrangement. I think a lot of banks look to hit very smart targets, and when I say smart, I mean specific, measurable, ambition, realistic and time bound.

We have actually seen a lot of banks spend an enormously huge amount of time making sure that the bar is set very high because as more of these loans come into the market, there are many data points to look upon. You don’t want yours to be at the lower bar. You want to come in on the other side of the spectrum, where other people aspire to be.

I feel that as the market progresses, there will be less greenwashing as to who actually attains much higher bar and standard on behalf of the market.

TXF: And what is important to you when working as counsel to advise a bank on a sustainability-linked loan? How do you ensure that the right level of sustainability is being achieved by the KPIs?

JW: Very good question. I view knowledge and experience as very important, keeping abreast of these various rules and regulations that come in, because it changes very fast. The UN SDG (sustainable development goals) came in in 2015, and the Paris Accord as well. We have got a lot of these green laws and sustainability-linked principles published by the LME.

So, we’ve got to be quite alert and knowledgeable in getting involved in law transactions, knowing how these principles are actually implemented. But the most key when talking about sustainability is that you must actually believe what you are doing. This is not something about just achieving a price saving, a margin reduction, because you meet a certain KPI.

This is something where you invest and provide certain advice. The standard is high enough, and I think between banks, corporates, advisers, we know that there is a spectrum. The spectrum is not just about getting a certification from an industry association saying that you’ve met the standard, and there is a cut: you say ‘this is a sustainability linked loan and you fulfil the requirements.’

A lot of people are trying to set achievable and ambitions targets on the KPIs for the ESGs and (we’re) actually looking at being very proud to be attached to this particular corporate as it goes through this transformation. I do feel that the most important elements, knowledge, experience and belief, belief in what you are doing, is most important.