Asia Pulp & Paper buys back its own debt

Asia Pulp & Paper buys back its own debt

NEW YORK (Bloomberg): One of Indonesia's wealthiest families
is taking advantage of the crash in Asia's bond markets to buy
securities of Asia Pulp & Paper Ltd., a company it controls.

Sinar Mas Group, through a company it controls called APP
Global Ltd., bought back as much as a third of the US$245 million
of three-year convertible notes it sold last year, according to
people familiar with the purchases.

Sinar Mas, dominated by the Widjaja family, paid about $600
per $1,000 bond, which have an annual interest rate of 2 percent
and can be converted into Asia Pulp & Paper stock.

"The family is using it's own cash to repay its own debt,"
said David Common, analyst at J.P. Morgan Securities Inc.

By purchasing the notes at a discount, Sinar Mas locked in a
45 percent annual return for the next two years because it has to
pay investors about $1,230 per $1,000 bond when they come due. It
also lowered its interest costs.

The purchases are another sign confidence is returning to
Asian countries and companies after economies from Japan to
Indonesia sank into recession.

Bonds -- including securities sold by South Korea, Petronas of
Malaysia and Hutchison Whampoa Ltd., a Hong Kong holding company
-- rallied in the past two months along with Asian currencies and
stocks. The Asia Pulp & Paper convertible notes were recently
quoted at 74.

Buying the bonds is a vote of confidence in the companies and
region, analysts said. "Any time a company buys back debt, that's
a good sign," said Terry Buffalo, vice president of fixed income
at American Investment Services Inc. in Peoria, Illinois.

Asia Pulp & Paper's American depositary receipts almost
doubled since hitting a low of 4 3/4 in August. The ADRs were
unchanged at 9 3/8 today.

The purchase is a sign that Sinar Mas -- which owns a thicket
of companies in the forest products, financial services, property
and food businesses -- has cash and is willing to bet its stock
and bonds are undervalued.

Analysts said Asia Pulp & Paper is one of many borrowers from
emerging markets that are buying back debt.

Bonds of Asia Pulp & Paper and its subsidiaries, including PT
Pindo Deli Pulp and Paper Mills and PT Indah Kiat Pulp & Paper,
tumbled along with debt of other emerging market borrowers
as economies slowed, Asian nations devalued their currencies and
Russia defaulted on its debt in August, driving investors away
from all but the safest securities.

Asia Pulp & Paper, roughly 80 percent owned by Sinar Mas,
escaped the worst of the rout because it had $2.3 billion of cash
at the end of June. Almost 60 percent of its costs are in
Indonesian rupiah, while most of its revenue is in dollars. The
company, one of the biggest Asian issuers of below-investment
grade debt in the U.S., hasn't missed debt payments.

With markets recovering, investors "are looking to see if they
can start bottom fishing in Asia," said Mike Casey, who helps
manage $450 million of international bonds at Federated Investors
in New York.