APP announces payment suspension

JAKARTA (JP): The Singapore-based Asia Pulp and Paper Company Ltd. (APP), one of the world's largest pulp and paper companies, announced on Tuesday that it had suspended all payments to creditors.

The holding company said that it would immediately halt interest and principal payments on all of its debts and on debts issued by the company's subsidiaries and affiliates.

"We will give priority to servicing our suppliers and trade creditors," APP's chief financial officer Hendrik Tee said in a statement.

The decision, which was issued upon the recommendation of its financial advisor Credit Suisse First Boston (CSFB), was essential to allow the company's subsidiaries to continue normal operations, he said.

Tee said the sharp drop in pulp and paper prices, a reduction of available lines of credit for working capital, combined with the rising cost of borrowing for Indonesian corporates, had impacted significantly on the business, especially its cash position.

"We hope the prices will recover during the next quarter," he said.

He added that the company had to prioritize its suppliers, after which it would consider resuming the full or part payment of interest on a ratable basis.

As one of the world's leading pulp and paper companies, APP currently has a pulp capacity of 2.3 million tons and a paper and packaging capacity of 5.7 million tons. It owns 17 manufacturing facilities in Indonesia, China and India and markets its products in more than 65 countries worldwide.

While expressing regret at the decision, Tee said that it was in the best long-term interests of the company and its creditors.

He added that the company also plans to arrange an agreement with its creditors, noting that a number of creditors had already initiated efforts to develop debt repayment schemes, individually and collectively, for the operations in China.

"We welcome these efforts," he said, outlining the company's intention to discuss the current suspension and future options separately with each of the China operating entities and non- China creditor groups.

Tee said appropriate approaches would need to be developed for the various creditor groups based upon their respective circumstances.

"The company and its financial advisor will meet creditor representatives to discuss the restructuring process and method for providing information to creditors," he added.

Tee stressed that the company and its subsidiaries intended to treat all their creditors fairly and equitably.

APP, with total debts of $12 billion, has several hurdles to negotiate in the future. The company's subsidiary PT Pabrik Kertas Tijiwi Kimia has a $200 million payment due on Aug. 1, while in October, APP will face a $506 million payment on floating rate notes.

The company also started falling behind on supplier credit payments several months ago and has various debt coupon payments due in the near future.

"There are plenty of coupons that won't be met throughout the year until this situation is resolved, which I think will take some time," a Roberts Securities representative told Dow Jones.

"It will be difficult, complicated and contentious," he predicted. (03)