Debt restructuring deal to earn Bakrie & Brothers Rp 4t

JAKARTA (JP): Publicly listed holding company PT Bakrie & Brothers said on Thursday the implementation of its US$1.08 billion debt restructuring deal would earn the company some Rp 4 trillion (about US$353 million) this year.

"From this restructuring, the company will book a very large income of Rp 4 trillion," Bakrie president Irwan Sjarkawi told The Jakarta Post.

He said that to incorporate the debt deal into Bakrie's financial statements, accounting procedures require the company to receive an injection of capital.

But Irwan stressed that this measure does not involve the inflow of real cash.

The injection of Rp 4 trillion in the form of equity would offset the erasing of Bakrie's debts, he explained. Under accounting rules, both items, debts and equity, would be recorded as liabilities in the company's balance sheet.

As the asset and liability sides must always be balanced, without changing the asset side, a drop in the amount of debt could be compensated with an increase in equity at an equal value.

A rise in equity, however, would appear in a company's income statement as non-operational revenue, thus boosting profit.

"But there will be no real cash, no profit to share," Irwan added.

Asked whether the company could pay the subsequent high income tax from the non-existent income, he said Bakrie could.

"Otherwise we wouldn't have a debt restructuring deal in the first place," he said.

"Implementation of this debt restructuring deal is expected to be finalized by the end of this year," Irwan went on.

Bakrie secured the debt deal last December, following lengthy negotiations with its creditors.

Ninety percent of Bakrie's debts are foreign debts, with the remaining 10 percent comprising debts from local banks, including those transferred to the Indonesian Bank Restructuring Agency (IBRA).

The group's creditors include Amex Singapore, Cariploe Singapore, Chase Manhattan Singapore, Deutsche Bank, Dresdner Ltd., Hitochu Corp.

Under the debt-to-equity-swap deal, the company will relinquish 95 percent of its ownership in four subsidiaries to its creditors.

They include a 52.4 percent stake in PT Bakrie Sumatra Plantation, a 70 percent stake in electronics company PT Bakrie Electronics Company and a 20 percent stake in coal mining firm PT Arutmin.

Bakrie's creditors will then form a special purpose vehicle (SPV) to contain their interests in these units.

Bakrie's chief commissioner Aburizal Bakrie said problems concerning the divestment of Bakrie's stake in Arutmin had slowed the deal's implementation.

Current mining regulations, he said, do not mention the transfer of shares owned by local investors to foreign ones.

He said the regulations only require the divestment by foreign mining companies of a portion of their shares to local investors after a certain period.

According to him, the transfer of Bakrie's stake to the foreign owned SPV now awaits approval from the Minister of Energy and Mineral Resources.

Aburizal said that following the implementation of the debt deal, Bakrie & Brothers by itself would have no debts.

However its subsidiaries still own debts of about $270 million, all of which were sustainable, he said.

"Bakrie Brothers as a whole will become a very healthy company and it will be easier for us to generate profit," he told reporters after the company's annual shareholders' meeting.

In the meeting shareholders approved a management decision to defer dividend payments for a third consecutive year.

Last year, the company booked a net loss of Rp 1 trillion against a net profit of Rp 758 billion in 1999, citing soaring foreign exchange losses.

During the shareholders' meeting, economist Sjahrir was also voted as Bakrie's independent commissioner. (bkm)