Asia Pulp gets $100m loan for Indah Kiat
Asia Pulp gets $100m loan for Indah Kiat
HONG KONG (Bloomberg): Asia Pulp and Paper Co., the only Indonesian company to borrow abroad this year, said it cut its borrowing costs by more than half when it backed with APP shares a US$100 million one-year loan for its Indah Kiat Pulp & Paper Corp. Tbk.
The new financing, arranged late last month by ING Barings, helps Singapore-based APP group, which had about $9 billion in debt and $1.2 billion in cash at the end of the first quarter, repay debts and expand its regional pulp and paper business.
The loan pays investors almost 10 percent, or 400 basis points more than the Singapore Interbank Offer Rate. That's less than half the 23 percent it had to pay investors earlier in July when it sold an $85 million one-year bond that wasn't backed by shares.
"Sibor plus four percent is a bit steep for one-year (funding) but Indonesia is not out of the woods yet," said Edwin Wong, a fixed-income analyst at Lehman Brothers in Hong Kong. For the APP group "2000 is a big year in terms of debt maturities so any funding they can shore up now will help," said Wong
The APP group will have repayed at least $1.2 billion in debt between April 1999 and March 2000, said analysts. Its debt is rated "Caa1" by Moody's Investors Service and "CCC+" by Standard & Poor's Corp.
Future Offers
APP put up 185 million ordinary shares as collateral for the new loan. Those shares were among 480.6 million that had previously been attached to a $600 million five-year floating rate note due 2001 that was restructured without collateral.
The company was able to release the shares because it persuaded most investors holding the old FRN to exchange them for the new securities. It purchased the remaining bonds in the secondary market.
These steps allowed APP to restructure the securities, a process that was completed July 29, a year after it first asked investors to exchange subordinated secured notes for new unsecured senior notes.
Analysts said APP, which also sold a bond last month and is preparing another loan, is likely to sell some of these freed-up shares or use some as collateral for additional borrowings.
"The balance of the shares could be used by the group to raise new funds,'' said Yuen Chak Lee, an analyst at Merrill Lynch & Co. in Kuala Lumpur.
The freed-up shares represented 50.1 percent of the voting stock of New York Stock Exchange-listed APP when the exchange offers began last year. Backing loans with shares helps keep investors and other creditors from easily taking control of the company.
"The company wanted to make sure that if there were difficulties that control didn't fall into someone else's hands," said Jiffriy Chandra, a fund manager at Income Partners Asset Management Ltd. in Hong Kong.
BankBoston N.A. which is arranging a separate $150 million to $200 million two-year loan for APP that will be secured by receivables instead of shares, said the pricing for that new loan won't be comparable to the ING-arranged loan.
"This is a different type of deal altogether," said Clifford Lee, BankBoston's head of Asian fixed-income syndications. "We hope to launch it in two weeks' time."
Fund Freeze
While analysts said the released shares will provide APP with more financial flexibility, they are concerned that APP's risks could rise on concerns of mismanagement at Bank International Indonesia, the banking unit of the Sinar Mas group.
The group, which is controlled by Indonesia's Widjaja family, owns 67 percent of APP.
APP group companies, which have at least $160 million in deposits at BII, could see those funds frozen if the bank is taken over by the government for exceeding limits on lending to related companies.
"There's inter-group lending between BII and the APP companies," said Chandra. "People will be keeping a close eye on it."