Analysts warns about loans for Timor car

JAKARTA (JP): The US$690 million in syndicated loans to be provided by domestic banks to PT Timor Putra Nasional to carry out the national car project could turn sour and become bad debts, analysts warned yesterday.

Economist Faisal Basri from the University of Indonesia and automobile analyst Suhari Sargo doubted Timor Putra's capacity to repay the debts in view of the small sales target set by the company.

"An annual sales target of 40,000 vehicles per annum is too small to reach a break-even point," Faisal was quoted by Antara as saying.

Faisal also doubted whether the $690 million loans would be sufficient for Timor to develop a manufacturing industry with a minimum local content of 60 percent, as required by the government.

However, economist Anwar Nasution also from the University of Indonesia, did not foresee any big problems with the loans, especially in view of Timor's captive market in the public sector.

Anwar saw the big loans, to be disbursed under a tight monetary condition, as special credit which "seemed to be endorsed by the central bank".

Analyst Suhari foresaw a financial burden of at least $170 million a year for Timor simply to install and service the debts beginning in 2000.

"This amount will be equivalent to 15,000 cars. That's very hard for Timor because it has to produce and sell 150,000 vehicles a year to get a 20 percent profit margin," Suhari told The Jakarta Post yesterday.

He said between 30,000 and 50,000 sedans were sold each year, or 15 percent to 20 percent of the country's total automobile market.

A consortium of four state banks and 12 private banks decided Monday to disburse US$650 million in loans to Timor Putra which will mature in 10 years, including a grace period of three years. The interest rate of the loans was set at three percentage points above the average deposit rates of three to six months.

Apart from the $650 million, consortium leader Bank Dagang Negara had earlier disbursed $40 million in bridging finance to the company.

Timor Putra president Hutomo Mandala Putra said Monday that the loans would be used to finance the construction of its manufacturing facilities in Cikampek, West Java.

The facilities, which would cost $1.09 billion, would have a production capacity of 70,000 vehicles a year. But Timor expects to initially sell only 40,000 a year.

Suhari suggested that Timor Putra explore new markets and produce other types of vehicles such as vans to enable it to increase its annual sales target above 40,000 vehicles.

Suhari said Timor Putra could reduce its debt-servicing burdens by bringing in new investors through private placement or floating its shares to the public through the capital market before 2000.

Hutomo, President Soeharto's youngest son, said the company would probably go public next year to generate fresh funds to strengthen its capital.

"I don't see any big risk for the loans to turn sour because the marketing system for Timor sedans is different from that of other sedans," Anwar said.

President Soeharto ruled in February 1996 that Timor car, as the national automobile, is exempted from import duties and luxury taxes, which usually add about 60 percent to the price of cars sold in Indonesia.

In the meantime, Timor Putra has been allowed to import its sedans from South Korea's Kia Motors Corp, the company's financially troubled partner in the car making venture, until the plant becomes operational in 1999.

In early May, Coordinating Minister for Economy and Finance Saleh Afiff announced that the government had ordered 13 banks to lend US$1.3 billion (later revised to $690 million) to help Timor Putra speed up the construction of its manufacturing plant in West Java.

Later in June, State Minister of National Development Planning Ginandjar Kartasasmita announced a ruling that sedan procurements by the government, local administrations and state companies must be Timor cars.

Despite the preferential treatment, Timor car has been lagging in sales. According to the latest industry figures, Timor car sales totaled 1,623 in June, far below its target of more than 2,000 a month.

The United States, European Union and Japan are currently contesting the Timor car program through the Dispute Settlement Body of the Geneva-based World Trade Organization. (rid)