The Role of Financial and Legal Advisors

The Role of Financial and Legal Advisors Fifth Annual Sovereign Debt Restructuring Conference: Whom to Blame for Sovereign Debt Restructurings — Borrowers, Creditors, International Institutions, or Catastrophes?

25 February 2020

GIC / LeBow ’s Sovereign Debt Series

Strictly Private and Confidential

For Discussion Purposes Only

Newstate Partners LLP 2 Duke Street London SW1Y 6BN United Kingdom

OUTLINE

The Role of Advisors During the Restructuring of Sovereign Liabilities » Current Global Macro-Environment » Why does Specialised Advice Matters? » How Advisors Can Help? » Sovereign Debt Restructuring Lessons » Retaining Financial and Legal Advisors » Q & As

For Discussion Purposes Only

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Current Global Macro-Environment Some pertinent themes have emerged from the Pandemic, geopolitical developments and normalisation of monetary policy in developed nations.

These will have significant implications on the evolution of debt sustainability across sovereigns: »

Sovereign debt is at unprecedented high levels and the global stock of public debt will increase placing huge risk management pressures on sovereign debt managers •

Massive accommodation in monetary policy among DC have led to record low interest rates, however sovereign spreads across DC and LICs are begin to rise

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Payment capacity is deteriorating at a rapid place in a number of DC and LICs, the prospects for financial stress and a potential SDRs is increasing

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Sovereign creditor base continues to evolve, with the share of debt owed to China and commercial creditors, growing at a rapid pace,

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This have significant impact on relations between debtors and creditors particularly if a SDR becomes necessary

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Why does Specialised Advice Matters?

Sovereign Debt Restructurings are complex situations that require decisive and immediate policy actions »

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Each sovereign crisis is different and unique •

Assessing the causes is critical

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Creditor bases are diverse and heterogeneous

The design of an appropriate reform programme to address economic imbalances and restore fiscal and debt sustainability is paramount

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This will require financial and technical assistance from all stakeholders •

Multilateral assistance is the first port of call

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Stakeholder support, including creditors, is also important

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Transparency, fairness and adequate disclosures are necessary

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Capacity building takes time

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How Advisors Can Help?

If restructuring of sovereign debt is required, a credible process is necessary to minimise disruption and impact as well as to accelerate the resolution.

Financial all legal advisors bring expertise and experience »

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Assessing the nature of the imbalance •

Liquidity versus solvency

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Validation of debt sustainability and payment capacity

Formulation of fair and credible engagement and negotiation with creditors is critical •

Creditors should be treated as stakeholders

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Transparency, fairness and equitable process

Engagement with creditors may be complex •

Understanding financial interests and constraints is important

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Creditor coordination is necessary

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Documentation of agreed resolution is time consuming For Discussion Purposes Only

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Some Important Sovereign Lessons » Addressing Economic Imbalances Understanding economic challenges and developing a broad based reform plan to address economic imbalances, strengthen social safety nets as well as promote inclusive and sustainable growth, is vital -- the importance of credible reforms cannot be stressed enough

» Debt Restructuring Must Complement Credible Reforms A sovereign debt restructuring in isolation is not a panacea for resolving economic imbalances. A debt restructuring must complement a credible reform programme

» Multilateral Support Multilateral institutions are critical stakeholders that should support a strong reform agenda, via financing, technical assistance and capacity building efforts

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Some Important Lessons » Formulation of a MTDS Developing a comprehensive Medium Term Debt Management Strategy (MTDS) is vital to assess debt sustainability requirements and assess inherent risks in the sovereign debt portfolio

» Viable Communication Strategy is Vital to Approach all Stakeholders If a debt restructuring is necessary, engage early in a transparent and orderly manner with all stake holders

» Engage financial and legal advice early SDR are complex and unique. Engagement of competent financial and legal advisors should be sought early and in transparent manner to assist with the formulation of adequate solutions and strategies to engage with creditors.

Creditors are

stakeholders and interests can be aligned to ensure a country in crisis emerges stronger

» Process Matters Consensual negotiations based on an open exchange of views and ensuring interstakeholder equity (burden sharing) is necessary to build consensus and foster support for critical reforms For Discussion Purposes Only

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Retaining Financial and Legal Advisors The Appointment of financial and legal advisors need not be difficult or controversial »

Select experience and expertise •

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Seek references

Employ a transparent and fair process •

Request for proposals

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Avoid complexity

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Assess potential resolution options

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Demand accountability

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Understand costs

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Contact Information For further information, please contact: Rafael M. Molina Newstate Partners LLP 2 Duke Street London SW1Y 6BN United Kingdom Phone: E-mail: Website:

+44 20 3077 4914 rmolina@newstatepartners.com www.newstatepartners.com

Authorised and Regulated by the Financial Conduct Authority Copyright Newstate Partners LLP. All rights reserved Newstate Partners LLP ("Newstate") exercises reasonable care and takes appropriate precautions to ensure that the information contained in this presentation is accurate, up-to-date and reflects our understanding of your requirements. Any proposal or recommendation contained in this presentation is given in good faith and based on information currently available to Newstate. Newstate reserves the right to change its recommendation based on further information received by it (whether from you or from third parties). Nothing in this presentation is an offer by Newstate to enter into contractual relations with you

For Discussion Purposes Only

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