Asia Pulp & Paper debt plan delay hurts bonds<\/p>\n
JAKARTA (Dow Jones): Asia Pulp & Paper's silence over a plan
\nto restructure part of its huge $10 billion debt to head off a
\nfunding crunch has raised fears that the company may not move
\nahead with the deal, analysts say.<\/p>\n
Singapore-based APP's bond prices have fallen sharply this
\nyear on worries the company's paper businesses in Indonesia and
\nChina aren't making enough cash to repay $2 billion in debt
\ncoming due before the end of next year.<\/p>\n
APP's plan to exchange $3.1 billion of notes for new bonds,
\nand some cash, which it outlined in September, produced a
\nmomentary pause in the fall in its bond prices.<\/p>\n
The plan would have pushed back repayment periods to 2005,
\nrelieving immediate funding difficulties.<\/p>\n
But since then, APP has made no mention of the exchange,
\nfueling investor concern the company doesn't have enough spare
\ncash for the plan, and leading to calls for the company to sell
\nnon-core businesses to bring down its debt.<\/p>\n
\"APP bond prices have come down since August amid rumors
\nthey're not going to go ahead with the exchange,\" said Imogine
\nBaker, a credit analyst at Barclays Capital in Hong Kong.<\/p>\n
Concern over APP's high borrowing to fund expansion in recent
\nyears has forced the company to offer yields of around 25 percent
\nto attract investors to rollover debt that has come due this
\nyear.<\/p>\n
Ballooning interest costs on existing debt, and rising pulp
\nprices, have eaten into revenues, adding to concern over the
\ncompany's short-term funding structure.<\/p>\n
Some of APP's 12 actively traded debt issues are now trading
\nas low as 60 percent down from original issue prices. Many of the
\nbonds, all of which are distressed debt because of Indonesia's
\njunk sovereign rating, were trading down only 30 percent at the
\nstart of the year.<\/p>\n
Even with a successful restructuring, APP's bonds won't see a
\nsustained recovery unless the company reduces its debt by selling
\nnon-core assets, analysts say.<\/p>\n
Although the exchange plan would reduce immediate funding
\ndifficulties, it would only postpone the problem, eating into
\nfuture revenues.<\/p>\n
Most of APP's operations are in Indonesia, where it has two
\nJakarta-listed subsidiaries - PT Indah Kiat Pulp & Paper and PT
\nPabrik Kertas Tjiwi Kimia. That makes APP one of a very few
\nIndonesia-linked companies to remain active in international bond
\nmarkets.<\/p>\n
Indah Kiat's shares have dropped recently on the local bourse
\non concerns the company's revenues will be siphoned off to repay
\nthe parent's debt.<\/p>\n
The stock closed Thursday at 1,000 rupiah (11 US cents), down
\nfrom Rp 1,165 in September when the bond exchange scheme was
\noutlined.<\/p>\n
Wijaya family<\/p>\n
Analysts say the company should protect its core businesses
\nsuch as Indah Kiat, selling off peripheral operations. These
\ninclude power plants in China, chemical plants, and packaging
\nbusinesses.<\/p>\n
\"They owe too much money and they don't have enough cash-flow,
\nso they have to divest non-core assets,\" said a foreign credit
\nanalyst, who asked not to be named.<\/p>\n
In the first six months of this year, APP had negative cash
\nflows of about $15 million due to the high cost of servicing
\ndebt, and the jump in the price of pulp, the company's main raw
\nmaterial for producing paper.<\/p>\n
But Indonesia's Wijaya family, which controls APP, seems
\nunwilling to sell assets at current low prices. Indonesian asset
\nprices have been driven down due to political and social
\ninstability this year, and a slower-than-expected economic
\nrecovery.<\/p>\n
\"Long-hoped-for asset sales remain just that,\" said Barclays
\nCapital's Baker.<\/p>\n
APP says it has $1.4 billion in spare cash, but analysts
\nquestion how much of this total the company can get its hands on
\nnow. Much off the cash is tied up in time deposits, or with Bank
\nInternasional Indonesia, a bank closely connected with the Wijaya
\nfamily.<\/p>\n
The company's slow progress in raising cash from asset sales
\nhas hurt its New York listed stock price. Plans to invest a
\nfurther $1 billion in its Malaysian paper joint-venture -
\nalthough shelved for the time being - have further added to
\nconcerns.<\/p>\n
APP's American depository shares plunged 61 percent to an all-
\ntime low of $1 per share a few days after it announced the bond
\nexchange plan in September, before rebounding to end at $1.56 -
\ndown 39 percent on the day. At the close Thursday in New York,
\nthe shares were at $1.625.<\/p>\n
Still, credit analysts say APP has a number of solid
\nbusinesses, and its bonds might offer a good bet at current low
\nprices for investors that aren't adverse to risk.<\/p>\n
With debt of cigarette maker PT Hanjaya Mandala Sampoerna -
\none of the few other internationally traded Indonesian bonds -
\ncurrently trading at only about 25 percent below original issue
\nprice, APP paper is beginning to look attractive, the foreign
\nanalyst said.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/asia-pulp-paper-debt-plan-delay-hurts-bonds-1447893297",
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