Kiani optimistic JPMorgan will accept restructuring plan
The Jakarta Post, Jakarta
Troubled pulp and paper company PT Kiani Kertas is optimistic that JPMorgan Chase & Co., its biggest overseas creditor, will accept a debt restructuring scheme proposed by the company as it would deliver a high recovery rate for the bank.
Kiani chief commissioner Luhut M.P. Panjaitan told The Jakarta Post on Thursday that the company was still in the process of negotiating the debt restructuring scheme with JPMorgan, and hoped to clinch a deal within the next couple of months.
Luhut acknowledged that JPMorgan had rejected Kiani's "preliminary" debt restructuring proposal as it considered it ineffective in allaying concerns that the company might default on its debts again.
"The rejection was of our preliminary proposal. Now we are in the process of negotiating a new restructuring scheme. I believe that the new proposal will deliver a high rate of return for the bank," said Luhut.
Luhut refused to further elaborate regarding the contents of Kiani's new proposal to JPMorgan and its other creditors.
JPMorgan channeled about one-third of a $120 million loan to Kiani, which was formerly controlled by businessman Bob Hasan, a crony of former President Suharto.
As reported by Bloomberg on Wednesday, JPMorgan had opposed the earlier debt restructuring plan for Kiani as it failed to address concerns that the company might default again within 12 months. The bank's objection was expressed in a letter sent to Kiani advisor Renaissance Capital Asia dated Aug. 12, which was obtained by Bloomberg.
One of the concerns raised by the bank was a report from Renaissance that underestimated the amount of funds that would be required by Kiani in order for it to be able to run its business, and pay its debts and the interest accruing thereon.
Renaissance proposed an injection of $50 million into Kiani as a prerequisite for the restructuring scheme, with half of the money to be used for working capital and the remainder for capital expenditure.
Kiani is currently unable to run its operations due to a lack of capital, leaving it unable to pay its debts and the interest thereon.
However, JPMorgan said Kiani would require between $30 million and $40 million for capital expenditure and more than $25 million in working capital for it to be able to run its business satisfactorily.
According to Bloomberg, Kiani also proposed that creditors accept haircuts of between 50 percent and 60 percent in the sums owed to them, with the unpaid debt being converted into equity in the company.
The proposal also said that between 40 percent and 50 percent of the loans would be converted into 10-year loans, paying 5.5 percent interest annually for the first three years, and 7 percent from the fourth year onwards. All interest arrears up to the date of the agreement would be fully waived, Bloomberg said.
Aside from the debts it owes to JPMorgan, Kiani has also defaulted on some Rp 1.3 trillion (US$144 million) owed to state- owned Bank Mandiri, causing the bank's non-performing loans to soar to 8.4 percent in the first quarter of the year. The bank was ordered by the now-defunct Indonesian Bank Restructuring Agency (IBRA) in 2002 to team up with Prabowo Subianto, a son-in- law of former President Soeharto, to take over Kiani's debts.