Foreign creditors call for independent APP management

Foreign creditors call for independent APP management

Dow Jones, Jakarta

Foreign creditors of Asia Pulp & Paper petitioned the
Singapore High Court Monday to appoint an independent management
over concerns private creditors might lose out to Indonesia's
government during restructuring of the company's US$13.4 billion
debt.

Deutsche Bank AG and BNP Paribas SA - both creditors of APP -
filed a petition with the court in Singapore, where APP is
registered, to oust the current management and place the company
under judicial management while it restructures its huge debt.

"The intention of the petitioning banks is to facilitate the
efficient restructuring of APP's debts and liabilities to allow
the company to continue as a going concern by having a court-
appointed manager oversee the restructuring process," Deutsche
Bank said in a statement.

Deutsche Bank declined to comment further Monday, but it
appears likely the petition was motivated by concerns over a
looming deadline for the Sinar Mas Group, APP's parent, to repay
$250 million from the $1.25 billion it owes the Indonesian
government by the end of June.

Sinar Mas has pledged assets - including some of its
businesses under Indonesian-listed PT Indah Kiat Pulp & Paper and
Pabrik Kertas Tjiwi Kimia - as a guarantee for its debt with the
Indonesian government.

Indonesia's Bank Restructuring Agency, or IBRA, has threatened
to sell these assets if Sinar Mas fails to pay up on time.

Sinar Mas spokesman Yan Partawijaya told Dow Jones Newswires
Monday the group will make payment by the deadline.

But he declined to comment on whether APP will appeal the
Deutsche Bank petition in court.

APP successfully appealed a petition from Swedish pulp-trading
company, CellMark AB, late last year to wind up the company.
CellMark asserted it had been unable to collect $10.8 million
owed by APP. The Singapore High Court froze the petition after
APP's lawyers argued the company was more valuable as a going
concern than as liquidated assets.

Deutsche Bank's petition doesn't attempt to liquidate APP, but
to keep the company going under independent management.

The creditors are currently in talks with APP, which is being
advised by Credit Suisse First Boston, over restructuring the
debt. But the huge number of creditors has made for slow
progress, with participants saying it may take years to fully
work out the debt. Deutsche Bank is on the steering committee for
APP's debt restructuring.

Foreign creditors remain worried that Indonesia's unclear
legal system might mean the government - under pressure to reduce
its budget deficit - will be able to push for repayment from APP
ahead of private creditors that are owed the majority of debt.

APP has riled overseas creditors in the past by giving in to
pressure from local investors to continue making payments on
rupiah currency bonds after calling a debt standstill on its
total loans early last year.

The company borrowed heavily from international debt markets
in the 1990s - when Indonesia was the darling of overseas
investors - only to see its business collapse over falling paper
prices.

Indonesia's government became APP's largest single creditor
late last year when the state pumped bonds into PT Bank
Internasional Indonesia - Sinar Mas' former banking arm - to save
the institution. For years, Sinar Mas used BII to lend without
restriction to its own businesses, including APP.

Of the $1.25 billion Sinar Mas owes the government, some $1
billion is owed directly by APP.