Wed, 20 Jun 2001

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)