BNI agrees to keep Texmaco Group's head above water

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.