Chase optimistic on RI debt exchange program

Chase optimistic on RI debt exchange program

NEW YORK (Dow Jones): Chase Manhattan Bank Corp. will tender all Indonesian bank debt eligible for exchange for new loans as part of the country's sweeping debt restructuring program, the chief credit officer of the U.S. bank said Tuesday.

"We will tender 100 percent of eligible debt," Robert Strong said in a telephone interview, underscoring Chase's commitment to the success of the exchange program.

Of the $400 million that Indonesian banks owe Chase, Strong estimated that about 90 percent would be eligible and tendered for exchange for fresh loans guaranteed by the Indonesian central bank.

The debt contracted by Indonesian banks, including derivatives and guarantees, must mature before April 30, 1999 to qualify for the exchange.

Chase also has about $200 million in trade finance arrangements with Indonesian banks which will be handled under a separate program, the chief credit officer said.

Strong said he's confident the Indonesian debt exchange program will attract enough interest from foreign creditors to move forward. "We remain optimistic that (the program) will be successful," he said.

Indonesia would kick off a six-city marketing tour on yesterday in New York to woo international bank creditors.

The International Monetary Fund's number-two man, Stanley Fischer, was scheduled to attend the New York roadshow, while Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita will lead the Indonesian delegation.

Under the terms of a June agreement between Indonesia and foreign creditors, the exchange program will move forward if financial institutions tender at least $6 billion in debt. If only $4.5 billion are tendered, Indonesia will have the option of making the exchange effective.

"I'm optimistic they'll get at least $4.5 billion," Chase's credit officer said, noting that the program provided an "appropriate balance between the debtors' and creditors' needs."

A source familiar with proceedings said that upward of $7 billion in bank debt would qualify for exchange.

Because derivative contracts can't be quantified accurately before they expire, the source said it was difficult to assess how much would be eligible. Banking sources estimated that about $1 billion in derivative contracts would qualify for tender.

Also somewhat difficult to quantify are obligations of banks under guarantee, the source said.

Strong said that given the dire straits of some Indonesian banks, Chase thinks some debt forgiveness may be needed.

"We recognize that there will be some situations where debt forgiveness or debt-for-equity (swaps) could be required," the Chase banker said, noting that these types of arrangements will be done on a case-by-case basis. The official declined to estimate how much debt forgiveness would be granted.

Debt write-offs weren't mentioned in the June agreement, but many bankers familiar with the plan say that they will be required for the restructuring to be successful.

The bank debt exchange program is part of a wide-ranging debt restructuring agreement reached between Indonesia and its creditors on June 4 in Frankfurt.

Also included in the deal is a plan to roll over about $4 billion in trade finance arrangements and to reschedule about $60 billion in debt held by Indonesian private and public companies.

The Chase official said that Indonesian companies had already repaid about 80 percent of arrears due on the bank debt and trade financing and that the rest was in the process of being repaid.

The repayment of the outstanding arrears, believed to be around $1 billion total, is a precondition to the exchange program moving ahead.

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