Asia Pulp unit shares slump on over $10b debt concern<\/p>\n
SINGAPORE (Bloomberg): Shares of Asia Pulp & Paper Co. and its
\nunits dropped, some to a record, after analysts cut investment
\nratings on worries about the group's ability to repay more than
\nUS$10 billion debt.<\/p>\n
American depositary receipts of Asia Pulp, Asia's largest
\npaper maker outside Japan, plunged 4.4 percent to a record $1.375
\nTuesday in New York.<\/p>\n
Shares of PT Indah Kiat Pulp & Paper Tbk, the most profitable
\nAPP unit, fell as much as 1.3 percent to a 33-month low of Rp
\n1,105 in Jakarta on Wednesday.<\/p>\n
Indah Kiat had its stock rating cut by Morgan Stanley Dean
\nWitter Inc., which said falling pulp prices and rising borrowing
\ncosts would reduce investor returns.<\/p>\n
The cut follows reductions by two other brokerages in the last
\ntwo weeks on concern APP may use its units' profits to avoid
\ndefaulting on $2 billion repayments due next year.<\/p>\n
\"Indah Kiat is APP group's cash cow,\" said Nilesh Bhatt, an
\nanalyst at PT Rashid Hussain Securities in Jakarta that cut its
\nrating on the company to \"market performer\" from \"outperformer\"
\nin August.<\/p>\n
\"The fear is APP will milk Indah Kiat to meet its debt
\nrepayments. We don't think APP can repay its loans from its
\ncurrent cash flow.\"<\/p>\n
APP's American depositary receipts have plunged 83 percent
\nthis year. The company sold the receipts at $11.50 at its initial
\npublic offering in 1995, arranged by Morgan Stanley.<\/p>\n
Morgan Stanley analysts Charles Spencer and Stanley Ling cut
\nthe rating of the unit of Asia Pulp & Paper Co. to \"outperform\"
\nfrom \"strong buy.\" The stock has dropped 60 percent since the
\nbank posted the strong buy recommendation on July 22, 1999.<\/p>\n
Asia Pulp last month unveiled a plan asking investors to
\nexchange or adjust terms on more than $2 billion of bonds
\noffering them a mix of cash and new debt that pay a higher
\ninterest. In July, APP borrowed $100 million paying 25 percent
\ninterest to avoid defaulting on an earlier loan. That sale was
\narranged by J.P. Morgan & Co.<\/p>\n
Worse, the price of Indonesian pulp, the main source of
\nrevenue for Indah Kiat, has fallen by 7 percent from a high of
\n$690 a ton in July, said Morgan Stanley.<\/p>\n
\"We're not comfortable with the company's growing levels of
\ndebt,\" said Steven Lim, a fund manager at Daiwa SB Investments
\n(Singapore) Ltd., who helps manage $1 billion in assets.<\/p>\n
Lim has been selling his holdings in Indah Kiat since the
\nAsian financial crisis and sold the last shares three months ago.<\/p>\n
APP \"has to come to some kind of arrangement to repay their
\ndebt. They can get out of trouble if they can sell some assets
\neven if they have to sell at a fire-sale price -- they have no
\nchoice. It's better to sell yourself than have it sold by the
\nliquidator.\"<\/p>\n
Johannes Salim at PT HSBC Securities Indonesia and Masya Spek
\nat G.K. Goh Stockbrokers, in the past two weeks recommended
\ninvestors \"sell\" Indah Kiat shares. Salim cut his rating from
\n\"underperform.\"<\/p>\n
Still, \"buy\" or \"outperform\" ratings outweigh \"sell\", \"hold\"'
\nor \"underperform\" rating on the stock by 17 to 12, according to
\nthe 29 brokerages surveyed.<\/p>\n
That's even though Indah Kiat shares have fallen 60 percent so
\nfar this year, under-performing the benchmark Jakarta Stock
\nExchange Composite Index which has declined 39 percent.<\/p>\n
\"Why invest in a company which has destroyed shareholder value
\nwhile you can find other companies in Indonesia which have built
\nvalue for shareholders,\" said Salim, who cut his rating to \"sell\"
\non Oct. 2. \"The company has never made an economic profit,\" or a
\nprofit from its cost of capital, he said.<\/p>\n
Salim is worried APP may dip into Indah Kiat's cash to pay its
\ndebt. The group as a whole and its units run the risk of a debt
\ndefault if APP is unable to get investors to agree to its debt
\nrescheduling plan, he said.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/asia-pulp-unit-shares-slump-on-over-10b-debt-concern-1447893297",
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