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.