BNI agrees to keep Texmaco Group's head above water
The Jakarta Post, Jakarta
State-owned Bank Negara Indonesia (BNI) has agreed to maintain a trade financing facility for troubled textile and engineering giant Texmaco Group.
But this would apply only if Texmaco founder and owner Marimutu Sinivasan started repaying debts owned based upon previous financing facilities extended by BNI.
The agreement was reached during a meeting on Monday between the bank, officials of the Indonesian Bank Restructuring Agency (IBRA), and Marimutu Sinivasan, a press release issued by the agency said.
No top officials from either Texmaco or BNI were available for comment.
Texmaco owes some US$29 million under a trade financing facility in the form of a letter of credit (L/C) to BNI that has been causing problems since June 2001.
Because IBRA has gone guarantor for Texmaco's debts to BNI, the agency will have to repay the debt in case of default. This would mean that the taxpayer would ultimately have to shoulder the burden. The guarantee is part of a debt restructuring deal agreed by IBRA and Texmaco in early 2000.
But amid public criticism over the special treatment extended to Texmaco, IBRA then persuaded BNI to give Texmaco more time to repay its debts.
Under Monday's agreement, Sinivasan was given until June to come up with at least $25 million in cash to repay the debts owed to BNI.
BNI's commitment to maintaining the Texmaco L/C facility is crucial for ensuring the business sustainability of the group as no other bank seems willing to lend to it given its bad track record.
In fact, Texmaco almost sent BNI into bankruptcy when it defaulted on debts worth some Rp 9.8 trillion. The government moved in to bail out the bank. Texmaco's massive debts were then taken over by IBRA. Texmaco and IBRA agreed on the restructuring of these debts in 2000.
Part of the deal was that IBRA agreed to guarantee up to $100 million borrowed from BNI under a trade financing facility. BNI said it had only lent the money in the light of the IBRA guarantee.
It was in the interest of IBRA to ensure that Texmaco could continue operating in order to recoup the money owed by the group to the state.
Texmaco has been criticized for failing to repay the $29 million trade financing facility. IBRA officials have admitted that in addition to adverse economic circumstances, Texmaco management had violated the lending arrangements.
The trade financing facility was supposed to be used for Texmaco's textile operations, but part of the money went to its engineering division.
Exporters normally use L/Cs issued by banks to finance the importation of raw materials. They then repay the loans once they have obtained revenue from their exports.
But in the case of Texmaco, IBRA and BNI were unable to monitor the flow of the revenues being received by Texmaco. Under Monday's deal, it was agreed that a special escrow account would be set up to accommodate incoming Texmaco revenues so as to ensure that the money would go toward repaying the money borrowed under the BNI facility and the debts owed to IBRA.