IBRA rejects Chandra Asri's debt workout

JAKARTA (JP): Almost three weeks after the ministerial Financial Sector Policy Committee approved a restructuring scheme for the US$730 million foreign debts of olefins producer PT Chandra Asri, nothing has yet been done to finalize the agreement, informed sources said here on Thursday.

"The deal, reached after more than 19 months of negotiations, is instead in danger of collapsing after the Indonesian Bank Restructuring Agency (IBRA) refused to implement technical elements of the scheme," officials involved in the debt workout said.

They added that IBRA chairman Edwin Gerungan, who seemed to be displeased with the scheme, had implicitly rejected the deal through an official letter to the FSCP head, Coordinating Minister for the Economy Rizal Ramli, asking him to take over finalization of the debt workout.

"Obviously, the FSPC does not have the resources to do such technical tasks as drawing up all the documents needed to close the deal," the sources said.

Edwin, however, declined to make any comment when asked on Wednesday about his refusal to implement the scheme's technical details.

Under the final debt workout scheme, Marubeni Corp. would convert $100 million of its consortium's $730 million loans to Chandra Asri into 20 percent equity shares in the company, with the remaining debts to be rescheduled with 15 year terms and annual interest floating 1.5 percentage points above the London Interbank Offered rate (Libor).

IBRA would convert $375 million of the $425 million loans it took over from domestic banks into 31 percent ownership and leave the remaining $50 million as an outstanding loan to Chandra Asri. The other 49 percent of the petrochemical company would be owned by founding shareholder Prajogo Pangestu.

Sources at IBRA said Edwin still insisted that Marubeni convert a larger amount of its credits to Chanadra Asri into equity capital.

Marubeni has, however, persistently argued that the debt-to- equity conversion ratio is fully in line with the Shareholders Agreement, which stipulates that financial assistance to Chandra Asri shall be borne on a pro-rata basis by each shareholder.

Marubeni said the FSCP, as the governing board of IBRA, has agreed to include the Shareholders' Agreement in the final debt workout.

Asked about the differences of views between IBRA and the FSCP, Marubeni said it was still waiting for a request from IBRA to start executing the technical details of the debt workout.

"We are very eager to start working out the details as there are so many documents that have yet to be drafted and numerous details that need to negotiated further," T. Murakami, Marubeni's chief operating officer in Indonesia, said.

"Our main priority is to finalize the debt workout as soon as possible so that Chandra Asri, Indonesia's only olefins factory, can resume normal operations and embark on a refurbishment to improve its efficiency," Murakami added.

The sources added that, even if everything ran smoothly, it would take about one to two months to complete all technical details of the final debt workout scheme.

Murakami reiterated that quick finalization of the debt restructuring is vital to save Chandra Asri, warning that further delays on the technical details could severely damage the olefins center because it could run out of cash and be forced to halt production by the end of June.

If this happened, Chandra Asri would lose its customers to other competitors in Thailand, Singapore and Malaysia, he cautioned.

Japanese diplomats here said their government is also greatly concerned about Chandra Asri's debt workout execution because Japan's Export and Import Bank, which together with the Overseas Economic Cooperation Fund has now merged into Japan Bank for International Cooperation, became the biggest creditor to Chandra Asri, accounting for $430 million of its $730 million in foreign debts.

Separately, Chandra Asri's executives confirmed that the company was on the verge of a severe liquidity crisis because it had almost exhausted its $30 million working capital credit from Bank Internasional Indonesia.

They said they had been negotiating a new line of credit with Bank Mandiri, however the state bank had made a credit commitment conditional upon the finalization of Chandra Asri's debt restructuring scheme.

They said the company's cash flow problems had been exacerbated by the refusal by one of its main domestic customers, polypropylene producer PT Tri Polyta Indonesia, to pay for Chandra Asri's propylene since last December.

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

The executives said Tri Polyta now owed Chandra Asri a cumulative amount of more than $40 million.

Chandra Asri, they added, are in a very delicate position, having no easy opportunity to market its propylene elsewhere because it had not built storage tanks for the chemical.

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

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

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

They are confused as to why Tri Polyta is putting pressure on Chandra Asri. (vin)