Mandiri asked to put money into ailing firm

Mandiri asked to put money into ailing firm

Rendi A. Witular, The Jakarta Post, Jakarta

The Office of the State Minister of State Enterprises has
requested Bank Mandiri, the nation's largest bank by assets, to
explore the possibility of injecting fresh capital into the
ailing state-owned paper firm PT Kertas Kraft Aceh (KKA).

The request was made despite the fact that Mandiri is saddled
with bad debts worth some Rp 165 billion (US$17.86 million) with
the same company. KKA has total debts of Rp 300 billion.

"A capital injection from Bank Mandiri is one of the three
options put forward by the government to rescue KKA from
bankruptcy," Minister Sugiharto told Tuesday's hearing with the
House of Representatives' Commission VI overseeing industry,
trade and state enterprises.

According to reports submitted by the state minister's office
to the Commission, KKA will need some Rp 200 billion in fresh
funds to restart its operations after its management decided to
temporarily shut down the company in April 2003.

The minister's request seemingly contradicts his earlier
statements over the need for Mandiri management to address their
high number of non-performing loans (NPLs).

The level of NPLs at Mandiri during the third quarter of 2004
remained high at 7.49 percent, up slightly from 7.44 percent in
same period the year before. The rate is well above the ceiling
of 5 percent set by Bank Indonesia.

The request to inject more funds into KKA is likely to put
Mandiri at even higher risk, as KKA faces the possibility of
default.

Sugiharto said aside from fresh capital injections from
Mandiri, the government was also looking at other options to keep
KKA afloat, including inviting new investors into the company.

KKA has ceased operations due to the unavailability of gas
supplies to fuel its production activities.

Gas supply to the company was cut off after U.S. energy giant
ExxonMobil refused to continue its supply following KKA's failure
to pay its gas bill totaling Rp 65 billion. ExxonMobil has a
contract to supply gas to KKA until 2008.

KKA, which employs 1,035 workers, has an installed capacity of
135,000 tons of packaging paper per year, with most of its
products being sold to local cement companies. The company
stopped paying its workers last year.