Creditors insist debtors sell noncore businesses

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)