Loan convertion 'a solution' to corporate debt
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)