Indofood plans bond issue to refinance debt

Indofood plans bond issue to refinance debt

Edhi Pranasidhi, Dow Jones, Jakarta

PT Indofood Sukses Makmur, the world's largest instant noodle maker, said Tuesday that it's exploring the possibility of issuing bonds to refinance higher interest rate bank loans and for investment.

"We are exploring an idea of issuing bonds," Indofood Chief Executive Eva Riyanti Hutapea told Dow Jones Newswires. She gave no further details, but the market expects the Indonesian company, part of the huge Salim Group, to issue around Rp 1 trillion (US$112 million) in local bonds.

Falling interest rates locally means it's a good time to refinance some of its bank loans, Eva said. Currently Indofood has long-term foreign debt of $480 million and Rp 3 trillion in rupiah loans.

Interest rates on the central bank's benchmark one-month note have fallen to around 13 percent recently from a peak of almost 18 percent in 2001.

Last year, the company issued $280 million in foreign bonds to help refinance debt. That was the largest offshore bond issue since the 1997-98 Asian financial crisis.

Indofood also wants fresh funds to finance investment plans for 2003, Eva said. The company is looking at buying palm oil plantations but hasn't yet made any firm decisions, she added.

"This year we are going to make investments," she said. "I'm always keen on palm-oil plantation companies."

The company has said in the past it wanted to buy palm-oil company PT Astra Agro Lestari. Apart from instant noodles, Indofood also has a large cooking and edible oil business.

But the Indonesian Bank Restructuring Agency, or IBRA, blocked Indofood from making any acquisitions until the Salim Group had repaid its debts to the state.

Indonesia's Salim family, which holds a direct 48 percent stake in Indofood through its Hong Kong-listed First Pacific Co. Ltd., owes the government Rp 58 trillion stemming from the collapse of its bank during the Asian crisis.

Salim handed more than a hundred companies to IBRA to help repay the debt but kept control of the crown jewel, Indofood. The government said recently it was considering to write off Salim's obligations, even though the value of companies it handed to IBRA has fallen short of its debts.

Falling consumer demand, due to slumping investment and rising unemployment, is a risk for Indofood's financial performance in the year ahead, Eva said.

But the company hopes to boost its sales volume by targeting middle-income consumers. Traditionally, Indofood makes most of its sales to lower-income consumers that account for the majority of instant noodle purchases. Sales volume could grow by 10 percent this year over 2002 in an optimistic scenario, Eva said.

Indofood made a net profit of Rp 651.9 billion in the first nine months of 2002, up 16 percent from the same period of the previous year. Sales grew 11 percent to Rp 11.9 trillion in the period. Full-year earnings figures for 2002 are due late next month.