Chandra Asri's debt workout<\/p>\n
After more than 18 months of negotiations, including vigorous
\npolitical lobbying by the Japanese government, and at least four
\ncontroversial preliminary agreements, the Indonesian Bank
\nRestructuring Agency (IBRA) finally decided on a take-it-or
\nleave-it restructuring scheme for more than US$1.1 billion in
\ndebts owed by PT Chandra Asri petrochemical company to domestic
\nand foreign creditors.<\/p>\n
The ministerial Financial Sector Policy Committee, IBRA's
\ngoverning board, announced on Monday it had finalized a debt
\nworkout program which would reschedule Chandra Asri's $700
\nmillion in foreign debts to Japanese creditors led by Marubeni
\nCorp. to 15 years with interest pegged at 1.5 percentage points
\nabove the one year American dollar London interbank offered rate
\n(Libor). If Marubeni disagrees with the terms of the scheme, the
\ncommittee will order IBRA to resolve the debt through a legal
\nprocess. Marubeni has yet to decide on the government-proposed
\nworkout.<\/p>\n
The final plan differs significantly from the preliminary
\nagreement signed by President Abdurrahman Wahid early last May
\nwhich was sharply criticized by the International Monetary Fund,
\neconomists and the House of Representatives as being too much in
\nfavor of Marubeni.<\/p>\n
Under this scheme, Marubeni would convert $100 million of the
\nforeign debts into a 20 percent equity in the company with the
\nremaining 80 percent to be held by IBRA (Indonesian government).
\nThe remaining $600 million debt would be rescheduled to nine
\nyears with an annual interest floating at 2.5 percentage points
\nabove Libor.<\/p>\n
IBRA did not provide details about the final scheme it
\nsubmitted to Marubeni last week, especially regarding the
\ngovernment's demand that Marubeni take a larger equity stake in
\nthe olefins industry. However, the government seemed to have been
\npersistent in turning down Marubeni's demand that it become the
\nsole creditor to Chandra Asri.<\/p>\n
Fearing that such a position could put the Japanese
\nconglomerate in a strong position to file a bankruptcy suit
\nagainst the petrochemical company, the final scheme proposes the
\ngovernment as a creditor with a $50 million exposure. This means
\nthat the government, which had taken over more than $400 million
\nin Chandra Asri debts to local banks and converted them into an
\n80 percent equity holding, would finally end up with a smaller
\nequity stake than the original plan. Marubeni would emerge with a
\nshareholding larger than the 20 percent, as agreed in the June,
\n2000 memorandum of understanding.<\/p>\n
Marubeni would be well advised to take the government proposal
\nvery seriously as the other option -- a bankruptcy proceeding
\nwould be quite messy and inflict big losses to both investors and
\ncreditors as only a tiny fraction of the liquidated asset could
\neventually be recovered.<\/p>\n
If the Japanese company is really confident about the
\ncommercial feasibility of the petrochemical industry, it would
\nnot be a major problem for it to raise its equity holding to more
\nthan 20 percent.<\/p>\n
After all, it was Marubeni itself which procured the machinery
\nfor the petrochemical project in early 1990s, built the whole
\nplant and even supplied its raw materials. Refusing to take a
\nbigger equity on grounds that Marubeni is itself facing financial
\nproblems would only validate the allegations rife in the 1990s
\nthat the cost of the project had been highly inflated, thereby
\nmaking it less competitive on the international market.<\/p>\n
Marubeni should realize that the $1.7 billion olefins project
\nin West Java had been a big controversy since its construction in
\n1991 due to the numerous forms of preferential treatment it got
\nfrom the then Soeharto administration. The project was exempted
\nfrom the foreign borrowing ceiling, which was introduced in late
\n1991 at the request of the World Bank due to Indonesia's
\nworsening balance of payments position. This was only due to the
\nfact it was sponsored by Soeharto's second son Bambang
\nTrihatmodjo and his business associates, notably Prajogo
\nPangestu. And yet, despite this controversy, Marubeni made the
\nplunge at that time.<\/p>\n
The government has shown good faith in trying to bail out the
\nproject even though Chandra Asri had been notoriously known as
\nthe icon of collusion and nepotism practices under the Soeharto
\nregime, getting preferential treatment from state banks and
\ntariff protection for its products.<\/p>\n
Maintaining Chandra Asri as an on-going concern is the best
\nsolution for both investors and creditors because olefins are
\nupstream chemicals Indonesia badly needs to develop its
\nmanufacturing industry. As the only integrated petrochemical
\nindustry already in operation in the country, Chandra Asri is in
\na greatly advantageous position to reap the benefits when the
\neconomy recovers strongly.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/chandra-asris-debt-workout-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}