APP halts bond payments due to foreign pressure

APP halts bond payments due to foreign pressure

JAKARTA (JP): The four Indonesian units of the heavily
indebted company, Asia Pulp & Paper (APP), are seeking to
reimpose a debt standstill over principle and interest payments
to rupiah bondholders, citing pressure from foreign creditors.

Chief executive officer of APP's publicly listed subsidiary PT
Pabrik Kertas Tjiwi Kimia, Gunawan Taslim, said that APP was
seeking to negotiate a suspension of payments to local
bondholders.

He said APP was feeling the brunt of foreign creditors who
questioned the company's payments to local bondholders despite a
payment standstill on all its debts since March.

We don't abide to the principle of our debt moratorium if we
have to make preferences over which creditors we pay," he told
reporters after a public expose on APP's two publicly listed pulp
and paper companies, Tjiwi Kimia, and PT Indah Kiat Pulp & Paper.

APP's two other subsidiaries are pulp and tissue producer PT
Lontar Papyrus and packaging firm PT Pindo Deli.

Gunawan fell short of saying how much APP owes to local
bondholders, but he said the company would skip interest payments
of Rp 42.5 billion (about US$3.7 million) due on July 14.

The New York-listed and Indonesian controlled APP is facing
heavy pressure to settle its $13 billion debts to local and
foreign creditors.

In March, the company announced a suspension on all debt
payments reasoning it needed time to stabilize operations of its
Indonesian and Chinese units.

The company blamed low pulp and paper prices coupled with
financial constraints for plaguing their operations.

Yet despite the debt moratorium, APP maintained interest
payments to local bondholders.

Sharp criticism followed from foreign creditors demanding that
all creditors should receive equal treatment. They fear the
Indonesian government, which is one of APP's largest creditors,
will be given priority under any debt restructuring deal.

APP is controlled by Indonesia's Sinar Mas Group, which owes
debts of some Rp 13 trillion to the Indonesian Bank Restructuring
Agency (IBRA).

IBRA took over the loans from Bank Internasional Indonesia
(BII), which is also partly owned by the Sinar Mas Group.

Following the debt standstill, APP said it would prioritize
any debt repayments to its suppliers and trade creditors to
enable its units remain in operation.

It argued that stabilizing its Indonesian units' operations
was vital for the faster servicing of its debts.

Gunawan said that after three months of the debt moratorium,
APP's Indonesian units showed an improvement in their operations.

Before, he said, production fell by an average of 20 percent
as its lack of liquidity led to a shortfall in raw materials.

"We had to use the money to pay debts," he said.

Consequently, he said, APP was unable to purchase the amount
of raw material needed to keep production at normal levels.

To date, production is seen improving close to its normal
levels, though not enough to call them stable, he said.

APP said in a statement on Wednesday that since April
liquidity of its units' operations had improved.

"Our liquidity situation has improved somewhat in April as a
result of our efforts in the first quarter to focus on cash sales
rather than sales on payment terms. This led to improved
production levels in April and May," said APP's chief financial
officer Hendrik Tee in a statement.

Though production is improving, sales have deteriorated.

The company's data shows that the average sales price of APP's
products in May and April were lower compared to the average
sales price during the first three months of the year. It gave no
explanation on the lower price figures.

APP is one of the world's largest pulp and paper groups,
owning 17 manufacturing facilities in Indonesia, China and India,
with markets in over 65 countries.

The company plans to dispose some of its assets to raise funds
for servicing its debts.

But Gunawan said none of these assets would be in equity from
APP's Indonesian units.

As yet, he continued, the company was waiting for the
appraisal of these assets before determining which to sell.

According to him, APP has been earmarked to sell machines for
the production of tissue owned by Pindo Deli.(bkm)