Fri, 18 May 2001

JITF sees more corporate debt converted into equity

JAKARTA (JP): Chairman of the Jakarta Initiative Task Force (JITF) Bacelius Ruru said on Thursday that there had been a growing amount of corporate foreign debt being converted into equity in the debt restructuring processes mediated by the task force.

Bacelius said that the trend indicated that foreign investors were still confident about the fundamental prospects of local companies.

"Over time there are more debts being restructured using debt to equity swaps. This is a positive trend," he told reporters.

He added that the conversion of debt into equity would also help reduce pressure on the ailing rupiah as such conversions did not require any dollar payments.

Chief operating officer of the JITF Samuel Tobing said that based on the restructuring results last year, out of every 100 U.S. cents of restructured debt, an average 34 cent was converted into equity.

Samuel said that the percentage of debt converted into equity could increase to more than 40 percent in the near future depending on the ability of the local debtors to service the debt, and on their willingness to surrender a greater amount of shares to their foreign creditors.

Ruru admitted that in some cases the local debtors, particularly family-owned businesses, were unwilling to hand over a large stake to the creditors.

"But there are already a couple of huge companies whose founders effectively no longer have shares as a result of debt restructuring," he said, pointing out as example that more than 95 percent of the shares in Bakrie & Brothers were no longer in the hands of the Bakrie family, the founders of the diversified business group.

The government set up the JITF in 1998 to help accelerate the restructuring of the country's huge corporate debt, particularly foreign debt. The task force plays a mediation role between debtors and creditors. But debtors and creditors cannot be forced to avail of the mediation facility provided by the JITF.

The International Monetary Fund and the government, however, have set a certain debt restructuring target that must be met by the JITF. The target is part of the economic reform program sponsored by the IMF.

The task force had managed to restructure around US$10 billion of corporate foreign debt by the end of December 2000, which was in line with the target set by the IMF, and increased the value of agreed restructurings to $11.88 billion by the end of April, more or less equal to the $12 billion target.

Ruru said that there had been some 109 debt restructuring schemes registered with the JITF involving an estimated debt of around $19.26 billion, of which 53 accounted for a total debt of $11.88 billion.

He said that the restructuring schemes registered with the task force included debts owed by some 48 publicly listed companies.

Ruru said that the government and the IMF had yet to decide on a new restructuring target for the JITF.

But, he said that considering the current volatility of the rupiah, domestic political instability and weak macro economic conditions, the task force should not be saddled with an unrealistic debt restructuring target.

"The volatility in the rupiah is discouraging debtors from concluding restructuring deals," he explained.

Ruru said that the realistic amount of corporate debt that could be restructured by the JITF during the remainder of the year was around $3 billion.

He added that most of the restructuring schemes currently being handled by the task force involved individual debt size of around $150 million, compared to $500 million per case previously.

"This means that we need to put in more man-hours just to meet last year's target level," he said, pointing out that the man- hours involved in the restructuring of a $500 million debt and a $150 million debt were almost the same.

"But of course, we'll always do our best to meet the (new) target set by the government and the IMF," he said. (rei)