IBRA reaches deal on APP debt restructuring plan

M. Taufiqurrahman, The Jakarta Post, Jakarta

After protracted negotiations, the Indonesian Bank Restructuring Agency (IBRA) and foreign creditors grouped under the Export Credit Agency (ECA) agreed on Friday on a debt restructuring deal for Asia Pulp & Paper (APP).

IBRA deputy chairman for credit and asset management, Mohammad Syahrial, said all parties had agreed upon a default mechanism that would protect creditors if the Singapore-based APP went into a second default.

"The definitive restructuring agreement was signed early this morning," he said.

Under the agreement, APP can be declared in default if 75 percent of creditors agree to the move. If the creditors fail to obtain 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 a fourth vote with a threshold of only 25 percent. All of the stages must be completed within 180 days.

The agreement also enables creditors to convert their debt to equity and to take over APP's Indonesian companies.

Syahrial said the agreement still had to be presented to the Financial Sector Policy Committee (FSPC) for approval. The committee, a group of senior economic ministers, has the final say on major deals undertaken by IBRA.

"We plan to hold a meeting with the FSPC late in the afternoon (on Friday)," he said.

FSPC, which groups senior economic ministers and holds the final say on any major transaction made by IBRA, approved the deal, a source said.

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 aftermath of the late 1990s financial crisis.

The deputy chairman of IBRA added that the agreement would be signed by all parties involved by the first week of July at the latest.

"We need to complete the administrative work and the arrangements for the collateral," he said when asked why the deal could not be signed immediately.

In March 2001, APP defaulted on $13.9 billion in debt, one of the largest defaults in the history of emerging markets.

The debt includes $6.7 billion owed by APP's four Indonesian paper companies -- PT Indah Kiat Pulp & Paper, PT Tjiwi Kimia, PT Pindodeli Pulp & Paper and PT Lontar Papirus Pulp & Paper Industries.

Earlier this year, 11 governments of foreign creditors sent a letter to President Megawati Soekarnoputri asking her to intervene in the restructuring of the APP debt.

The letter, cosigned by the ambassadors of Canada, nine European countries and Japan, urged the President to order her ministers to supervise IBRA to ensure a fair, commercially reasonable and transparent restructuring of Asia's largest paper producer.