IBRA unhappy with Chandra Asri's debt workout
JAKARTA (JP): The US$730-million debt restructuring scheme for PT Chandra Asri's olefins center in West Java could still fall apart due to the Indonesian Bank Restructuring Agency (IBRA)'s disappointment with the proportion of debt-to-equity conversion, sources close to the negotiations said over the weekend.
The sources cited a statement made on Friday by IBRA Chairman Edwin Gerungan, implying that the agency was not happy with the loan amount Marubeni Corporation would convert into Chandra Asri equity shares.
"IBRA's disillusionment with this debt-to-equity conversion could sabotage technical implementation of the final debt workout scheme," added the sources, who insisted on anonymity.
The sources said that Edwin's rationale on the debt-to-equity conversion was based entirely on the viewpoint of a creditor and not on the Shareholders' Agreement made by Chandra Asri.
Coordinating Minister for the Economy Rizal Ramli proudly announced on Thursday that Marubeni Corp. had agreed to meet the terms of the final debt restructuring scheme set by the ministry's Financial Sector Policy Committee (FSPC), the governing board of IBRA.
Rizal said that, under the final debt workout scheme, Marubeni would convert US$100 million of its consortium's $730 million in loans to Chandra Asri into 20 percent of equity shares in the company, while the remaining debts would be rescheduled to 15 years with annual interest floating 1.5 percentage points above the London Interbank Offered rate (LIbor).
IBRA is set to convert $375 million of the $425 million loans it took over from domestic banks into 31 percent share ownership and leave the remaining $50 million as an outstanding loan to Chandra Asri.
The remaining 49 percent of the petrochemical company will be owned by founding shareholder, Prajogo Pangestu.
"We welcome the agreement from Marubeni and have instructed IBRA and Marubeni to expedite finalization of technical details of the final agreement," added Rizal, who heads the FSPC.
The sources added that, even if everything ran smoothly it would take between one and two months to complete all technical details relating to the final debt workout scheme.
"There are more than 50 documents that must be drawn up and signed by all shareholders and creditors, such as new articles of association, shareholder, security pledge and loan agreements," the source said.
Marubeni Indonesia, however, declined to comment on IBRA's disappointment with the final debt workout scheme, saying that, "as we understand it, the final deal proposed by the FSPC in early April fully reflected the decision of the Indonesian government, which IBRA has to implement."
"We decided to accept the terms set by the FSPC in good faith, to restructure the debts as quickly as possible so that Chandra Asri, the only olefins center in Indonesia, can resume normal operations and regain access to bank credit lines," Marubeni's chief operating officer in Indonesia, T.Murakami, told The Jakarta Post on Monday.
Murakami said the debt-to-equity conversion ratio was 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.
"The FSCP has agreed to include this Shareholders' Agreement in the final debt workout and I simply cannot understand your question about IBRA's disappointment with the debt-to-equity conversion proportion," Murakami told the Post.
Murakami added that Chandra Asri's outstanding debts characteristically should not be seen simply as normal bank loans as they were extended as part of the shareholders' responsibility.
He reiterated that quick finalization of the debt restructuring is vital to saving Chandra Asri, warning that further delays in finalizing technical details could severely damage the olefins center as it could run out of cash and stop production by the end of next month.
"If this happened, Chandra Asri would lose its customers to other competitors in Thailand, Singapore or Malaysia," he cautioned.
The 19-month negotiations for Chandra Asri's $1.15 billion in foreign and domestic debts has often been marred by controversy, partly because it was founded in 1990 by former president Soeharto's second son Bambang Trihatmodjo and his business associates, notably Prajogo Pangestu.
Japan's Export and Import Bank which, together with the Overseas Economic Cooperation Fund, has now merged into the Japan Bank for International Cooperation, became the biggest creditor to Chandra Asri, accounting for $430 million of its $730 million in foreign debts.
It is no surprise, therefore, that the Japanese government is also greatly concerned about how Chandra Asri's debts will be restructured. Many analysts in Japan even consider resolution of the Chandra Asri debt problem as quite crucial in sustaining good bilateral relations.
Murakami, however, denied allegations that the investment cost of the Chandra Asri olefins center had been grossly inflated and that Marubeni had made handsome profits by becoming the sole supplier of naptha feedstocks to the plant.
"The cost of the project was fair compared to similar facilities in other countries in that time (the early 1990s) when the world's economy was bubbling with high prices," he said.
The cost of the olefins center was made unusually high because Chandra Asri also bore the costs of building basic infrastructure in Anyer such as a port, jetty, roads and power generator, which in other countries such as Singapore, Thailand, Malaysia and South Korea were the responsibility of the government, he argued.
He also denied that Marubeni made itself the sole supplier of naptha, the basic ingredient for ethylene.
"Marubeni has taken over the responsibility of procuring naptha for Chandra Asri because no overseas supplier is willing to sell the company that material on 90-day credit payment terms as Marubeni has been doing," Murakami said.
Marubeni, he added, would be quite happy if there were any foreign naptha supplier willing to supply Chandra Asri on similar credit terms, or even under a 30-day credit scheme. (vin)