Asia Pulp & Paper takes steps to cut debt<\/p>\n
WASHINGTON (Bloomberg): Asia Pulp & Paper Co Ltd has embarked
\non a series of financial steps -- including an exchange offer, a
\nstock offering and possible asset sales -- to obtain critical
\ncash and slash the company's US$9 billion debt load.<\/p>\n
One of the world's lowest cost producers of pulp and paper,
\nthe Singapore-based company said yesterday that it would seek to
\nshave off as much as $2 billion of debt by the end of 2001. That
\nwould ease the company's interest expense and strengthen its
\nbalance sheet, possibly boosting the price of its outstanding
\nbonds.<\/p>\n
Since 1994, Asia Pulp & Paper, controlled by one of
\nIndonesia's wealthiest families, tripled its paper production
\ncapacity and raised its pulp manufacturing capacity by 80
\npercent. However, the company financed the expansion by loading
\non debt, only to see local markets weaken when the Asian
\nfinancial crisis hit.<\/p>\n
The company provided key details on its debt reduction plan in
\na filing with the U.S. Securities and Exchange Commission to sell
\n40.3 million American depositary receipts, each of which
\nrepresents four ordinary shares.<\/p>\n
The document said the stock sale will essentially provide
\nworking capital while Asia Pulp & Paper takes other steps to
\nsimultaneously pare borrowings.<\/p>\n
For instance, Asia Pulp & Paper is planning to make a partial
\nexchange offer to investors who hold its 3.5 percent guaranteed
\nconvertible notes that mature in 2003 and its liquid yield option
\nnotes that come due in 2012. Investors could exchange some of
\nthese bonds for new notes that would mandatorily convert into
\nADRs in 2002.<\/p>\n
The net effect of the exchange: converting debt into equity.
\nThat would not only reduce the company's borrowings but also
\nbuild its equity base, moving the company forward in its plan to
\nreach a debt to equity ratio of 1-to-1 by 2002. Its debt to
\nequity ratio at Dec. 31, 1998, was 3.29-to-1, according to
\nfigures presented under Indonesian accounting principles.<\/p>\n
In order to lower the ratio, Asia Pulp & Paper also said in
\nthe SEC filing that it will use cash raised from sales of non-
\ncore assets to reduce debt. For instance, the company is
\nnegotiating to sell power generating assets at mills in Suzhou
\nand Dagang, China, to AES Corp., the filing said.<\/p>\n
\"We are also exploring a divestiture or other strategic
\ntransactions involving our packaging and tissue operations,\" the
\nfiling said. \"However, we cannot assure you that any of these
\ntransactions will be completed.\"<\/p>\n
The company's packaging operations provided about 32 percent
\nof net sales and 17 percent of income from operations last year.
\nPackaging and tissue are identified in the SEC filing as non-core
\nassets, while printing and writing paper are cited as core
\nbusinesses.<\/p>\n
The stock sale will provide about $300 million for working
\ncapital. Asia Pulp & Paper's working capital requirements are
\nincreasing, the filing said, because it is starting up additional
\ncapacity and is providing longer credit terms to increase export
\nsales, particularly in Europe and North America.<\/p>\n
Asia Pulp & Paper plans to use most of the stock proceeds to
\nstart up new paper facilities in China. The company expects to
\ncomplete projects this year that will boost its annual paper
\nproduction capacity in China by about 1.27 million tons to 1.33
\nmillion tons. The Chinese plants will add to the company's
\nprimary manufacturing capacity in Indonesia.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/asia-pulp-paper-takes-steps-to-cut-debt-1447893297",
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"sponsor": "Okusi Associates",
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