APP debt restructuring<\/p>\n
Foreign creditors, who in the 1990s were falling all over each
\nother to lend to the Singapore-based Asia Pulp & Paper Co., have
\nasked their governments to pressure President Megawati
\nSoekarnoputri to intervene in the process of restructuring US$6.5
\nbillion in debt owed by APP's four paper subsidiaries in
\nIndonesia.<\/p>\n
The wishes of the foreign creditors were conveyed in a letter
\nco-signed by the ambassadors of Canada, nine European countries
\nand Japan earlier this week. The letter urged the President to
\norder her ministers to supervise the Indonesian Bank
\nRestructuring Agency (IBRA), another major creditor of APP, to
\nensure the fair, commercially reasonable and transparent
\nrestructuring of Asia's largest paper producer.<\/p>\n
The 11 governments warned that the failure to reach a
\nreasonable debt restructuring deal could further erode foreign
\ninvestor confidence in Indonesia, and would dry up the new
\nlending from foreign export credit agencies that the country
\nbadly needs to expand its infrastructure.<\/p>\n
This intervention, coming three weeks before an IBRA-led group
\nof creditors is supposed to close a consensual debt restructuring
\ndeal with APP, provides a new twist in the saga of APP's default
\non over $12 billion in debts in March 2001, more than $6.5
\nbillion of which was owed by APP's four Indonesian paper units.<\/p>\n
It is worth recalling how in the 1990s and even until early
\n2000, three years after the 1997 financial meltdown in Indonesia,
\nforeign creditors were competing with each other to lend to APP,
\nlusting after its astronomically expanding businesses with little
\nregard to prudential credit assessment.<\/p>\n
The creditors and foreign investment banks, which aggressively
\npeddled APP securities to U.S. bond and stock funds, should have
\nknown that APP's huge expansion in the paper industry in the mid-
\n1990s, which astronomically increased its debts to over $12
\nbillion, had been out of control and that the paper business had
\nalways been cyclical.<\/p>\n
But now, with their credits having turned sour, the creditors
\nwant the Indonesian government, which had nothing to do with the
\nloans, to intervene to salvage their credits.<\/p>\n
The 11 export credit agencies claim that the repayment terms
\nand the timetable of the deal that IBRA will conclude with APP
\nlater this month are too lenient. They also believe the deal does
\nnot stipulate strong measures to discourage APP from another
\ndefault, nor does it allow for proper scrutiny by creditors of
\nAPP's deals, cash flow and control of its assets.<\/p>\n
The fighting between IBRA and the 11 foreign creditors seems
\nto have been caused partly by a lack of mutual trust. The export
\ncredit agencies, aware of IBRA's advantage resulting from
\nIndonesia's regulatory authority over APP's four local paper
\ncompanies, and of IBRA's notorious reputation for often pushing
\nquestionable deals with conglomerate debtors, felt that their
\ninterests had been largely ignored in the debt reorganization.<\/p>\n
On the other hand, IBRA, which is faced with a February 2004
\ndeadline to complete its mandate and an urgent need to safeguard
\nits more than $1 billion in credits to APP, connected to the
\ngovernment takeover of Bank International Indonesia from the
\nWidjaja family, the controlling owners of APP, seems impatient
\nwith the debt restructuring process, which has now gone on for
\nalmost two years.<\/p>\n
Few details are available about the preliminary restructuring
\ndeal, which IBRA and a group of other creditors signed with APP
\nin December and which is scheduled to be finalized later this
\nmonth. But APP has invited, through advertisements in the mass
\nmedia, other creditors willing to participate in the agreement to
\nsubmit relevant claims.<\/p>\n
However, with or without the foreign governments' intervention
\nit is nonetheless well advised for the government to take a
\nsecond look at the terms of the agreement before it is finalized.<\/p>\n
The assessment should focus on the viability of the business
\nplans on which the repayment terms and timetable are based, and
\non the provisions related to creditor oversight of APP's
\noperations to ensure that the group fully implements good
\ngovernance with high standards of accountability and
\ntransparency.<\/p>\n
All creditors certainly have the same interest in having APP
\noperate soundly and profitably, without which their chance of
\nrecouping even a fraction of their loans may be jeopardized.<\/p>\n
But APP will never be able to resume sound operations if the
\nrepayment terms and timetable are so harsh as to cause APP to
\ncarry unsustainable debt burdens. Hence, some debt write-offs are
\nimperative if the creditors are serious about reaching a sensible
\ndebt deal. After all, the creditors should also pay the costs of
\ntheir reckless credit decisions.<\/p>\n
The creditors also should realize that further delays in the
\nfinancial restructuring will worsen the uncertainty over APP's
\nownership status, demoralizing the managements of its business
\nunits and damaging the quality of the APP assets with which their
\nloans are secured.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/app-debt-restructuring-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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