IBRA unhappy with Chandra Asri's debt workout

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)