Loan convertion 'a solution' to corporate debt

JAKARTA (JP): Converting the loans given by overseas creditors to Indonesian companies into equity might be a good solution in dealing with the private sector's mounting foreign debt, a senior analyst says.

Hasan Zein Mahmud, the former president of the Jakarta Stock Exchange (JSX), said yesterday that the private sector did not have many more alternatives to finance their debts and that the conversion of the loans into equity was the best possible solution.

Radius Prawiro, President Soeharto's special assistant in helping the private sector negotiate its debt with foreign borrowers, announced Tuesday that Indonesian companies would temporary delay servicing their debt in a bid to ease pressure on the beleaguered rupiah and to allow time for further negotiations.

"A debt moratorium is not the solution for the private sector because the debt is still there," Hasan said. He said such a delay would only mean a pause in the repayment of the debt.

A temporary freeze is only a delay in the repayment of the debt. So the best possible thing to do now is to convert the corporate external debt into equity on the part of foreign creditors," he said.

Indonesia's private sector debt was worth about US$66 billion of Indonesia's total debt of $140 billion as of the end of 1997.

Hasan said the total corporate debt -- in terms of rupiah -- was worth about Rp 562 trillion (with the rupiah rate at Rp 8,500 to one U.S. dollar).

If the rupiah-dollar exchange rate was at Rp 10,000, the total corporate debt would be about Rp 660 trillion, much higher than their assets, he said.

"Suppose all listed companies on the JSX sold their combined assets, they would still not be able to pay their total external debts," he said.

Hasan said the amount of the private sector debt was three times the amount of market capitalization in the Jakarta stock market.

According to JSX data, total market capitalization in the JSX was Rp 159.9 trillion as of the end of 1997.

"It means that the total combined assets of all listed companies in Jakarta's stock market is only one third of the private sector foreign debt," he said.

Hasan said that converting the corporate debt into foreign creditors' equity would eventually change the share ownership in publicly listed companies on the JSX.

"The logical consequence of this solution is the decline of share ownership of founding shareholders. After the conversion, foreign creditors will become majority shareholders," he said.

Another analyst said he was pessimistic if foreign creditors would agree with such a debt-handling proposal.

"High uncertainty in the country's political situation makes foreign investors reluctant to conduct business in Indonesia. It's just a dream expecting foreign investors to enter Indonesia in this current situation," the analyst said.

Hasan admitted that changing the Indonesian corporate debt into equity would not solve the entire monetary problem unless the government came up with a strong measure to fight corruption, collusion and red tape, the real enemy of the country's economy.

The rupiah closed at 10,900 to the dollar in quiet trading yesterday against an opening of 10,500/11,500 in the morning.

At its current rate, the rupiah has lost 78 percent of its value against the U.S. dollar from 2,450 in early July last year. b(aly)