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)