IBRA expects APP restructuring deal in July

The Jakarta Post, Jakarta

The Indonesian Bank Restructuring Agency (IBRA) expected Asia Pulp and Paper (APP) to reach a final debt restructuring agreement with its creditors in early July.

IBRA Chairman Syafruddin Temenggung was quoted on Monday by detik.com as saying that a week-end agreement over a default mechanism should open the way for a final solution to settle the huge US$6.3 billion debt owed by APP's Indonesian units.

In a marathon meeting between APP and its creditors, including IBRA and foreign creditors grouped under the Export Credit Agency (ECA), the two sides agreed on a mechanism to protect creditors if the company goes into a second default.

Under the new agreement, APP can be declared in default if 75 percent of creditors agree. If the creditors fail to obtain the 75 percent support for default, they can take a second vote with a 67 percent requirement, a third vote with a 51 percent requirement, and fourth vote with a threshold of only 25 percent. These stages must be completed within 180 days.

Initially, APP demanded a 75 percent threshold. But the creditors, especially those grouped under ECA, which represents creditors from 11 countries, rejected the demand saying that the APP proposal was not feasible given the fact that the company's creditors -- which comprise hundreds of banks, bondholders, export credit agencies and others -- are spread across the world.

The ECA proposed a 25 percent requirement to declare a default.

Two years ago, the Singapore-based APP defaulted on $13.9 billion in debts, one of the largest defaults in the history of emerging markets. The debt includes money owed by APP's China units.

The Indonesian APP units are PT Indah Kiat Pulp & Paper, PT Tjiwi Kimia, PT Pindodeli Pulp & Paper and PT Lontar Papirus Pulp & Paper Industries.

Other areas of agreement during the week-end meeting were in less contentious issues such as the terms for converting debt to equity, and the creation of a creditors' committee to review related-party transactions.

Syafruddin said that the "policy makers" of each APP creditor have yet to give their final approval on the results of the week- end meeting.

He added that IBRA must also first seek approval from the Financial Sector Policy Committee, a grouping of senior economic ministers, which has the final say on the agency's major deals.

IBRA is APP's single largest creditor with total debts of $1 billion. The agency took over the debts from troubled local banks in the wake of the late 1990s financial crisis.