IBRA, Marubeni fail to reach agreement on debt

IBRA, Marubeni fail to reach agreement on debt

JAKARTA (JP): Indonesian Bank Restructuring Agency (IBRA)
chairman Edwin Gerungan said on Wednesday the agency had not yet
reached an agreement with Japan's Marubeni Corp. on the
restructuring of petrochemical giant PT Chandra Asri's foreign
debt.

With the Japanese creditors continuing to insist on an earlier
agreed to restructuring plan, Edwin said IBRA would continue the
negotiations with the hope of reaching a deal.

"They still insist on the old plan," he said on the sidelines
of a hearing between the finance ministry and House of
Representatives Commission IX for the state budget and finance.

In a memorandum of understanding signed last June by the
government and Marubeni, the Japanese creditors were to convert
about US$100 million of the debt owed it into a 20 percent equity
stake in Chandra Asri. The remaining debt was to be repaid over
12 years with an interest rate of 2.5 percentage basis points
above the London Interbank Offering Rate (Libor).

In return, the government, through IBRA, was to convert
Chandra Asri's local debt into an 80 percent equity stake in the
company.

But the June MOU was called off by the government following
criticism that it favored Chandra Asri's founding shareholders,
including Prajogo Pangestu. The critics said if the government
took an 80 percent equity stake in the company, it would risk
having to take on the future liabilities of Chandra Asri.

IBRA officials said recently they expected to reach a new deal
with Marubeni sometime in the middle of this month.

The agency said it proposed three new options to Marubeni
earlier this month in an effort to reach a deal to restructure
Chandra Asri's debt.

The agency has not disclosed what the options are, but sources
have said they are liquidation, debt restructuring or sale to a
strategic investor.

In any new debt restructuring deal, the government wants
Marubeni to lower the interest rate on the Chandra Asri debt so
that is the same as Libor, extend the repayment period to 15
years and increase its equity participation in Chandra Asri.

Marubeni earlier said it would only agree to lower the
interest rate to 1.5 percentage points above Libor.

Chandra Asri owes about US$700 million to a consortium of
foreign creditors led by Marubeni. The petrochemical firm also
owes about Rp 3 trillion to IBRA, a unit of the finance ministry.
The agency took over the debts from local banks.

The restructuring of Chandra Asri's overseas debt is an
important part of the country's corporate restructuring program
and is being closely followed by foreign investors.

Restructuring corporate overseas debt is seen as key to
helping revive foreign investor confidence in the economy.

The government reached an agreement with Chandra Asri founder
Prajogo Pangestu in November last year. The deal reduced the
government's stake in Chandra Asri to 31 percent, while Prajogo
ended up with a 49 percent stake, for which he had to transfer
ownership in about 20 companies to IBRA.

Chandra Asri had been a controversial company since
construction began on its petrochemical plant in the early 1990s.

The founders of Chandra Asri, including a son of former
president Soeharto, managed to convince state banks to finance
construction of the plant, located in West Java's Cilegon
industrial park, without first analyzing the company's business
plan.

Several Japanese lenders, including Bank of Tokyo-Mitsubishi,
Fuji Bank and JICA, joined Marubeni in helping to finance the
project.

But the Asian financial crisis that began in the middle of
1997 catapulted Chandra Asri into deep financial woes. The loan
the company received from domestic banks turned sour and IBRA had
to take over the loans to save the banks. (rei)