APP debt restructuring plan rejected by foreign bondholders

APP debt restructuring plan rejected by foreign bondholders

Dow Jones, Jakarta

Hopes for a quick resolution to Asia Pulp & Paper Co.'s (APP)
debt woes took a blow Monday when foreign bondholders said they
could not accept the terms of a recent plan to restructure the
borrowings of the company's Indonesian units.

A steering committee representing the bondholders said in a
statement that they've rejected a plan outlined last week under
which creditors would be asked to sign a restructuring deal by
May 31 for the US$6.5 billion debt held by APP's four Indonesian
operating units.

"The Bondholder Steering Group does not support the
restructuring terms...nor can it encourage other creditors to
support such terms," the statement said.

Bondholders have drawn up an alternative plan, which they have
handed to APP, it added.

The bondholders account for about a fifth of APP's total $13.9
billion borrowings, on which the company called a debt standstill
in early 2001.

As such, their disagreement with the plan on the table looks
set to complicate efforts to resolve one of the largest bad-debt
problems in emerging markets.

In part, APP's complicated business network and huge number of
creditors is making it difficult to reach a consensus debt plan.

APP is based in Singapore and has operations in Indonesia and
China. Its creditors range from institutional bondholders to
government agencies and foreign banks.

Indonesian Bank Restructuring Agency (IBRA), a government
entity which is among APP's largest single creditors with $1
billion in debt, announced earlier this year it was taking over
the restructuring of APP's Indonesian units.

IBRA is under pressure from the government to raise money to
fill a huge budget deficit.

Last week, APP released the details of the IBRA-sponsored
plan, which includes debt rescheduling over 10 years for part of
the debt, and a mechanism to siphon off profits from the company
in excess of operational needs to repay creditors.

The plan also promises faster repayments for creditors that
sign up by the May 31 deadline.

APP and IBRA have said they hope creditors will sign a
preliminary agreement Dec. 18.

But the bondholders are concerned that IBRA's plan doesn't
contain adequate provisions to ensure Indonesia's Widjaya family,
APP's founding shareholders, keep to the repayment terms of any
restructuring.

The bondholders said their alternative debt plan states
clearly that creditors will take "automatic and immediate"
management control of APP in the case of a future default.

The creditors want APP to hand a majority stake in the company
to an independent offshore custodian during restructuring, said a
person close to the group.

Bondholders are concerned that only IBRA will be sure of
repayment under the plan, while Indonesia's legal system is
inadequate to protect foreign creditors, the person said.

The group's plan also proposes the Widjaya family should
pledge more assets that are currently not under the APP umbrella
as security during the restructuring. The Widjayas have assets in
Singapore, where they reside, and China, people close to the
talks say. IBRA's plan makes no mention of these assets, the
bondholder group says.

Bondholders are also concerned that IBRA's plan pushes for the
restructuring of the Indonesian debt without working out a plan
for the Singapore holding company and China company borrowings,
which total about $7.4 billion.

Creditors holding debt from those companies might suffer, they
say. The alternative plan also stipulates that minimum repayment
amounts should be fixed in advance for all debt.