Government proposes three options to Marubeni
JAKARTA (JP): The government has proposed three new options to Japan's Marubeni Corp. in a bid to reach an agreement to restructure the overseas debt of petrochemical company PT Chandra Asri, according to an IBRA official.
The deputy chairman of the Indonesian Bank Restructuring Agency (IBRA), Irwan Siregar, said on Wednesday the agency planned to meet with Marubeni officials this week or next week, with the results of the meeting to be delivered to the Financial Sector Policy Committee (FSPC) on Feb. 20 for approval.
"I cannot disclose the options yet. We still have to discuss them with Marubeni," he said following a meeting with FSPC, which groups several senior economic ministers and has the right to final approval of major corporate and bank restructuring agreements.
But IBRA chairman Edwin Gerungan said the options included the government's demand for a low interest rate on the debt.
He added that other features in the options included voting rights, greater equity participation for Marubeni in Chandra Asri and management issues, though he declined to provide further details.
The restructuring of Chandra Asri's overseas debt is a key to the country's corporate restructuring program, and is being closely watched by foreign investors. Restructuring corporate overseas debt is seen as vital to reviving the confidence of foreign investors in the economy.
Chandra Asri owes about US$700 million to a consortium of foreign creditors led by Marubeni. The petrochemical company also owes approximately Rp 3 trillion to IBRA. The government already has approved the restructuring of Chandra Asri's local debt.
Negotiations with the Japanese creditors have been difficult, with Marubeni maintaining its demand the government stick to an earlier deal.
The government signed a memorandum of understanding on a debt restructuring agreement with Marubeni in June last year. Under the deal, Marubeni was to convert some $100 million of the money owed it into a 20 percent equity in Chandra Asri, while the government, via IBRA, was to convert the company's local debt into an 80 percent equity.
Marubeni also agreed at the time to give Chandra Asri 12 years to repay its remaining foreign debt, with an interest rate of 2.5 percentage points above the London Interbank Offering Rate (Libor).
But the FSPC chose to cancel the deal following criticism that it would expose the government to covering future liabilities of Chandra Asri because of its majority ownership in the company.
The FSPC has since demanded a debt restructuring deal that includes a low interest rate, greater equity participation for Marubeni in Chandra Asri and a debt repayment period of up to 15 years.
Marubeni expressed its willingness in November last year to lower the interest rate of Chandra Asri's debt to 1.5 percentage points above Libor, but the government demanded a rate equal to Libor.
The government reached an agreement with Chandra Asri founder Prajogo Pangestu in November last year to restructure the company's local debts. Under the deal, the government's stake in Chandra Asri was lowered to 31 percent, while Prajogo ended up with a 49 percent stake, while agreeing to transfer personal assets (ownership in around 20 companies) to IBRA.
Chandra Asri had been surrounded by controversy since construction on its petrochemical plant began in the early 1990s.
The founders of Chandra Asri, including a son of former president Soeharto, convinced several state banks to finance the plant, located in West Java's Cilegon industrial area, without first submitting their business plan for a proper analysis.
Several Japanese lenders, including Bank of Tokyo-Mitsubishi, Fuji Bank and the Japanese International Cooperation Agency, joined Marubeni to help finance the project.
But the Asian financial crisis that began in the middle of 1997 left Chandra Asri in serious financial trouble. The loans from the domestic banks turned sour and IBRA had to take over the loans to save the banks.(rei)