APP defends its management, reforms in Singapore court

APP defends its management, reforms in Singapore court

Hasan Jafri and June Goh, Dow Jones, Singapore

A court-appointed management to replace the Widjaja family would
hinder restructuring at Asia Pulp & Paper Co., which owes
creditors nearly US$14 billion, the company's lawyers said at a
court hearing Wednesday.

Lawyers representing the Singapore-registered, Indonesian
group also argued that a motion to replace the management enjoys
little support among creditors and that a Singapore court ruling
will be hard to implement in Indonesia and China where most of
APP's assets are.

Instead, APP should continue to operate under its present
management, aided by the Indonesian Bank Restructuring Agency,
which is one of its top Indonesian creditors, to quickly
restructure the group.

APP is one of the world's biggest pulp and paper producers and
Asia's largest debtor owing creditors some $13.9 billion.

In June, Deutsche Bank AG and BNP Paribas initiated legal
action to recover $193 million and $20 million that APP owes
them, respectively. The legal action pits Singapore's legal
system against one of the world's most complex companies.

The two European banks say they are being backed by several
other creditors, including Credit Lyonnais SA, Citigroup Inc., GE
Capital, a unit of General Electric Co., and Oaktree Capital.

Together, the companies are owed $3.6 billion - an amount that
APP counsel Davinder Singh disputed on Wednesday at the second
hearing since July 11. The hearing continues Thursday.

The plaintiffs argue a new management is needed because the
current one has failed to treat all creditors equally, it has
delayed the restructuring the group and failed to disclose
critical information about its finances.

But APP argues that surveys by its law firm show only a
minority of creditors supporting the plaintiff's legal action.

A quarter of creditors who are owed by the holding company
oppose the legal action and only 11 percent support it, Singh
claimed. Support is even weaker among creditors for APP's
operating subsidiaries in Indonesia and China, he said. Without
the subsidiaries, APP is essentially a holding company with few
assets of its own.

Those who oppose the appointment of a judicial manager include
Japanese lender Nomura, Clariden Bank and UOB Kay Hian, a unit of
Singapore's United Overseas Bank Ltd., Singh said.

Singh also argued that it will be nearly impossible to
implement orders from a court in Singapore as APP's assets are in
Indonesia and China where the court's jurisdiction could be
challenged.

"You can appoint 50-100 judicial managers ... in reality how
are they going to expedite the restructuring process?" Singh
said.

The Singapore-registered APP, which acts as a holding company
for some 150 pulp and paper assets across Indonesia, China and
the U.S., is owned by the Widjaja family and its Sinar Mas group.

Singh said IBRA, which is owed $1.2 billion, has taken on an
active role to restructure APP.

"IBRA is saying to this court ... this is Indonesia, we know
Indonesia well, let us do it," Singh said, adding that IBRA's
appointment of five financial managers at APP is a clear sign of
its intent to restructure the company and recover the debt
quickly.

The plea to appoint an independent management is also opposed
by Chinese banks - which are owed about $1.14 billion by APP's
China operations - and the labor unions, Singh said.