Asia Pulp & Paper buys back its own debt<\/p>\n
NEW YORK (Bloomberg): One of Indonesia's wealthiest families
\nis taking advantage of the crash in Asia's bond markets to buy
\nsecurities of Asia Pulp & Paper Ltd., a company it controls.<\/p>\n
Sinar Mas Group, through a company it controls called APP
\nGlobal Ltd., bought back as much as a third of the US$245 million
\nof three-year convertible notes it sold last year, according to
\npeople familiar with the purchases.<\/p>\n
Sinar Mas, dominated by the Widjaja family, paid about $600
\nper $1,000 bond, which have an annual interest rate of 2 percent
\nand can be converted into Asia Pulp & Paper stock.<\/p>\n
\"The family is using it's own cash to repay its own debt,\"
\nsaid David Common, analyst at J.P. Morgan Securities Inc.<\/p>\n
By purchasing the notes at a discount, Sinar Mas locked in a
\n45 percent annual return for the next two years because it has to
\npay investors about $1,230 per $1,000 bond when they come due. It
\nalso lowered its interest costs.<\/p>\n
The purchases are another sign confidence is returning to
\nAsian countries and companies after economies from Japan to
\nIndonesia sank into recession.<\/p>\n
Bonds -- including securities sold by South Korea, Petronas of
\nMalaysia and Hutchison Whampoa Ltd., a Hong Kong holding company
\n-- rallied in the past two months along with Asian currencies and
\nstocks. The Asia Pulp & Paper convertible notes were recently
\nquoted at 74.<\/p>\n
Buying the bonds is a vote of confidence in the companies and
\nregion, analysts said. \"Any time a company buys back debt, that's
\na good sign,\" said Terry Buffalo, vice president of fixed income
\nat American Investment Services Inc. in Peoria, Illinois.<\/p>\n
Asia Pulp & Paper's American depositary receipts almost
\ndoubled since hitting a low of 4 3\/4 in August. The ADRs were
\nunchanged at 9 3\/8 today.<\/p>\n
The purchase is a sign that Sinar Mas -- which owns a thicket
\nof companies in the forest products, financial services, property
\nand food businesses -- has cash and is willing to bet its stock
\nand bonds are undervalued.<\/p>\n
Analysts said Asia Pulp & Paper is one of many borrowers from
\nemerging markets that are buying back debt.<\/p>\n
Bonds of Asia Pulp & Paper and its subsidiaries, including PT
\nPindo Deli Pulp and Paper Mills and PT Indah Kiat Pulp & Paper,
\ntumbled along with debt of other emerging market borrowers
\nas economies slowed, Asian nations devalued their currencies and
\nRussia defaulted on its debt in August, driving investors away
\nfrom all but the safest securities.<\/p>\n
Asia Pulp & Paper, roughly 80 percent owned by Sinar Mas,
\nescaped the worst of the rout because it had $2.3 billion of cash
\nat the end of June. Almost 60 percent of its costs are in
\nIndonesian rupiah, while most of its revenue is in dollars. The
\ncompany, one of the biggest Asian issuers of below-investment
\ngrade debt in the U.S., hasn't missed debt payments.<\/p>\n
With markets recovering, investors \"are looking to see if they
\ncan start bottom fishing in Asia,\" said Mike Casey, who helps
\nmanage $450 million of international bonds at Federated Investors
\nin New York.<\/p>",
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