IBRA hopes to reach deal over Chandra Asri debt

IBRA hopes to reach deal over Chandra Asri debt

JAKARTA (JP): Indonesian Bank Restructuring Agency (IBRA)
chairman Edwin Gerungan said on Tuesday a new deal was expected
to be reached with Japan's Marubeni Corp. this week over the
restructuring of olefin producer PT Chandra Asri's debts.

"(The debt workout) can be completed this week," Edwin said
following talks with Marubeni representatives at the Ministry of
Industry and Trade.

He said the agency and Marubeni were currently reviewing
Chandra Asri's 2001 financial prospects for the purpose of
designing a new debt restructuring plan following the latest
developments in the petrochemical industry.

Edwin declined to provide further comment.

The high-profile Chandra Asri debt workout agreed to by the
government and Marubeni late in April collapsed after IBRA
rejected the deal.

The government, via the Financial Sector Policy Committee
(FSPC), which groups several senior economics ministers, approved
a debt restructuring plan for Chandra Asri. Under the deal,
Marubeni was to convert some US$100 million of its $730 million
in loans to Chandra Asri into a 20 percent equity participation
in the company.

The rest of the loan was to be repayable over a 15-year period
with an interest rate of 1.5 percentage points above the London
interbank offered rate (Libor).

Under the deal, IBRA, which has about Rp 3 trillion in loans
to Chandra Asri, would convert a much greater portion of its
loans into a 31 percent stake in the company. The remaining 49
percent stake would be held by Prajogo Pangestu, the founder of
Chandra Asri.

But IBRA rejected the deal, demanding that Marubeni convert
more of its loans into a greater equity participation in Chandra
Asri.

Prijadi Praptosuhardjo, who was the finance minister at the
time, supported IBRA's stance. The agency is a unit under the
finance ministry, and the FSPC decision could not be implemented
without the approval of the finance minister.

The FSPC was chaired by Rizal Ramli, who was the coordinating
minister for the economy at the time. But Rizal is now the
finance minister, replacing Prijadi in a recent Cabinet
reshuffle. Prijadi no longer holds a position in the Cabinet.

Meanwhile, Minister of Trade and Industry Luhut B. Pandjaitan
said after the meeting with the Marubeni representatives that the
government had decided to revise the earlier debt restructuring
deal, particularly in light of recent developments in the
petrochemical industry.

"The price of naphtha (a raw material for olefin production)
has changed. That's why the (previous) debt workout plan is
rather difficult to be carried out. We have to make a revision,"
Luhut said. "We expect we can reach a deal soon."

The Chandra Asri debt restructuring talks have been going on
for about 20 months, with the original restructuring plan
approved by President Abdurrahman Wahid in June 2000. But this
original deal was also rejected by IBRA, after Edwin was
installed as the new chairman of the agency.

Under the initial plan, Marubeni was to have ended up with a
20 percent stake in Chandra Asri, with the remainder of the
Marubeni loans to the petrochemical company being stretched out
over a 12-year period with an interest rate of 2.5 percentage
points above Libor. IBRA demanded a longer maturity period, a
lower interest rate and greater equity participation by
Marubeni.

Tri Polyta

In a related development, an official who attended the meeting
with Marubeni executives disclosed that the government will
pressure polypropylene maker PT Tri Polyta Indonesia to pay its
multimillion dollar debts to PT Chandra Asri to help rescue the
olefins industry from its present liquidity crisis.

The decision was made at the meeting after reviewing the
severe cash-flow problems of Chandra Asri.

The official, who spoke on the condition of anonymity, added
that unless Tri Polyta settled its trade bills to Chandra Asri
soon, a liquidity crisis may force the olefins center to shut
down within the next few weeks.

He said Chandra Asri's liquidity problems had been exacerbated
by the refusal of Tri Polyta, one of its main domestic customers,
to pay for Chandra Asri's propylene since last December.

Propylene and ethylene are core products of the $1.88 billion
olefins industry in Cilegon, West Java.

He added that Tri Polyta now owed Chandra Asri more than $40
million.

Government intervention was deemed necessary to help settle
the trade bill problem. Chandra Asri is in a very delicate
position, having no easy alternative to market its propylene
elsewhere because it did not build storage tanks for the bulk
chemical.

Since Tri Polyta is located in front of the Chandra Asri plant
at Cilegon, West Java, and both companies were initially
controlled by the same shareholders, led by Prajogo Pangestu,
propylene has been directly piped to Tri Polyta.

According to Chandra Asri, Tri Polyta has demanded a $50/ton
discount on the international price for Chandra Asri's propylene
and has simply stopped paying for the product until its demand is
met.

However, Chandra Asri executives have argued that such a low
price is not even sufficient to cover their production costs.

He said payment by Tri Polyta was now the only viable way of
preventing the olefins industry from closure, at least until its
billion-dollar debt restructuring program was completed.

The problem, he added, is that Chandra Asri has almost
exhausted its $30 million working capital line of credit from
Bank Internasional Indonesia.

Chandra Asri executives said they had been negotiating a new
line of credit with Bank Mandiri but the state bank had made its
credit commitment on condition of the finalization of Chandra
Asri's debt restructuring scheme.(rei/vin)