Creditors insist debtors sell noncore businesses

JAKARTA (JP): Foreign creditors demanded the country's corporate sector on Tuesday sell their noncore businesses as a key means of restoring the ability of defaulting debtors to repay loans.

Cash flow-generating prospects were a key consideration for the creditors to enter any debt restructuring negotiation, the creditors said on Tuesday at the closing of the two-day conference on the country's massive corporate debt.

"If the companies can generate cash flow tomorrow, then we'll talk about rescheduling. But if they don't have any prospects of that, we'll just have to shut up shop. It's just as simple as that," Toru Sumiyoshi of the Industrial Bank of Japan told reporters at a press conference.

Japanese banks and corporations form the largest group of foreign lenders to local companies with total debt exposure of US$23 billion out of the total private sector overseas debts of $63 billion.

The conference, which started on Monday and was attended by over 1,200 participants mostly representing foreign creditors and local debtors, was held by the Jakarta Initiative corporate and debt restructuring task force to encourage debtors and creditors to initiate stalled negotiations to reach an out-of-court debt settlement through corporate restructuring.

"An essential part of the corporate restructuring process is streamlining the corporation by releasing the noncore assets," said a representative of a foreign bank who declined to be named.

"This very important aspect was missing from the conference," he added.

He said that selling the noncore assets would serve two purposes for the debtors: boosting efficiency to improve their ability to generate cash flow and securing fresh money to repay debts.

He explained that most local corporations were "too overweight" to operate efficiently resulting from the aggressive expansion into noncore businesses during the boom times of the 1990's which were financed by massive overseas borrowings.

Sumiyoshi, however, said that this could not be generalized.

"There are companies which would be better off selling noncore assets. But there are those which would be better off by maintaining them," he pointed.

"The difficulty in dealing with private sector debt is the wide variety of debtors and creditors, so you can't make a generalization," he added.

Selling noncore businesses amid the current bearish market conditions, however, is not high in the minds of the local corporations especially as over Rp 177 trillion in fixed assets owned by defaulting bank owners are expected to come on the market soon to repay obligations to the government.

Chairman of the Indonesian Chamber of Commerce Aburizal Bakrie demanded foreign creditors agree to use future market value as the basis for corporate restructuring deal particularly in valuing local companies for the purpose of debt to equity conversion.

Chairman of the Indonesian Real Estate Association Edwin Kawilarang said on Tuesday that foreign creditors must not take advantage of the difficult situation faced by local property firms.

"They have to understand our situation first before we come to the negotiation table," he told reporters following a closed door meeting between local property firms and creditors.

"We want to talk about future market value," he said, adding that the property sector has a total debt of around Rp 70 trillion including overseas debts. (rei)