APP announces payment suspension

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.
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