Kiani optimistic JPMorgan will accept restructuring plan
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.