The Asia Pulp & Paper saga continues

The literature on emerging-market debt defaults is dominated by sovereign debt.

People talk a lot more about Ecuador and Argentina than they do about corporates.

But there’s one company whose default was so messy and so large that it’s entered

the consciousness, at least, of even the sovereign wonks: Asia Pulp & Paper,

or APP.

I’m not even going to attempt to unpack the nightmare that is APP

debt for you, partly because I’m far from an expert on it myself. But suffice

to say that the amount of legal time spent on it has been stratospheric. Anyway,

there was a mildly interesting wrinkle in Indonesia recently. An APP subsidiary

had issued dollar-denominated debt under New York law, and now a court in Indonesia

has decided that the New York debt issue was invalid as a matter of Indonesian


Weird, huh? Obviously, the place to litigate a New York debt issue is New York.

But the decision doesn’t carry the power of precedent, and it doesn’t invalidate

bondholders’ claims. It just makes those claims harder to litigate in Indonesia,

while there are still dozens of jurisdictions around the world which will happily

recognize a New York court judgment against a company. Still, it’s clearly a

setback for any vulture investors who were looking to get paid out on APP debt.


has read a Q&A

in FinanceAsia on all this, and quite rightly points out that there’s a

certain amount of risk involved when you buy bonds under New York law of a company

whose assets are not in the US. And, of course, the risk increases with the

sketchiness of the country in which that company is based, which is why it’s

very rare for an emerging-market corporate to have a credit rating higher than

its sovereign. But really, there’s nothing new here. One generally assumes that

recovery rates on EM corporate debt are lower than on domestic corporate debt

– that’s built into the price. But if you’re that worried about default,

you probably shouldn’t be buying the bonds no matter what the recovery rate


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