Arthur Andersen casts doubt on Asia Pulp's $1.2b debt

Arthur Andersen casts doubt on Asia Pulp's $1.2b debt

Noel Fung, Bloomberg, Singapore

Arthur Andersen says it can't verify $1.2 billion in trade debt owed to two Indonesian units of Asia Pulp & Paper Co., in a new blow to creditors seeking repayment of $13 billion from the Singapore paper producer.

Andersen, which quit as auditor of Asia Pulp last year, refrained from giving an opinion on the 2000 accounts of PT Indah Kiat Pulp & Paper and PT Pabrik Kertas Tjiwi Kimia, saying it couldn't say whether the debts were genuine, and whether they were from companies linked to the Asia Pulp group.

That may make debt-restructuring talks with Asia Pulp's creditors like ABN-Amro Holding NV more difficult. Creditors rejected the first debt-restructuring proposal presented by Asia Pulp and its advisers Credit Suisse First Boston on Feb. 1, citing opaque finances.

"I'm sure Andersen would have given their opinion, had they been provided with adequate information," said Andi Nugroho, who helps manage Rp 200 billion ($20 million) at PT ABN Amro Management Investasi.

Andersen, which is embroiled in controversy over the collapse of Enron Corp. and the failure of HIH Insurance Ltd. in Australia, is being sued in the U.S. by investors over its role in auditing Asia Pulp's accounts between 1997 and 2000.

Partly because of the trade debt, Indah Kiat restated its losses in 2000 to $400.7 million, from $147 million it reported in August. Tjiwi Kimia also showed a wider loss of $360 million in 2000, from $338 million stated in August.

Indah Kiat had $789 million in export trade debt from related and unrelated parties while Tjiwi Kimia had $418 million. The two units accounted for two-thirds of Asia Pulp's $3.1 billion sales in 1999.

Andersen questioned how much of the debt was in fact owed by companies related to Asia Pulp's controlling family.

Of the $1.2 billion trade debt in question, Indah Kiat and Tjiwi Kimia wrote off $558 million, and reclassified all of the $533 million it said was owed by related companies to a non- current status, meaning it won't have to be repaid within a year.

The move is important because Indah Kiat and Tjiwi Kimia last July sued five companies registered in the British Virgin Islands for $823.7 million in overdue trade debt and damages, claiming these companies were unrelated to the group.

Indonesian authorities, investors who bought $833 million of Asia Pulp's U.S. shares and creditors were puzzled as to why the company's staff acted as directors and agents for those BVI companies -- and wondered if the receivables were genuine.

"We were unable to substantiate the aforementioned receivables," Andersen said in its audit report. "We could not obtain confirmation replies or satisfy ourselves through other audit procedures."

The five BVI companies all have operating units registered in Singapore, and Asia Pulp staff and former employees were named as directors in Singapore company registry documents, according to company registration documents obtained by Bloomberg News.

Andersen also questioned a $261 million interest-free loan made to wood supplier PT Arara Abadi, a company owned by the Widjaja family that controls Asia Pulp.

In Jan. 2001, Arara was given an agreement by Indah Kiat under which it would sell pulpwood to the Asia Pulp unit at an agreed price in return for an interest-free loan that wouldn't be set against the supply transaction.

"We were unable to satisfy ourselves as to the recoverability and the net balance of such advances," Andersen said.

Analysts said such an agreement between a public and private company was unusual and that the agreement was one-sided.

"Indah Kiat borrows money from the public and lets it be used by Arara, with the interest burden staying at Indah Kiat," said Lin Che Wei, a Jakarta-based analyst at SG Securities.

Asia Pulp creditors complained on Feb. 1 that their financial adviser, KPMG LLP, wasn't given critical information about its businesses, particularly its relationships with affiliated forestry and trading companies and China operations.

In addition to ABN, creditors include Credit Lyonnais SA, Deutsche Bank AG and Bayerische Hypo-und Vereinsbank AG, as well as export credit agencies and fund management companies.

Shares of both companies have been suspended from trading since July last year because the companies failed to submit their 2000 financial statements in time to the Jakarta Stock Exchange.