Mandiri balks at helping out debt-laden KKA
Urip Hudiono, The Jakarta Post, Jakarta
State-owned lender Bank Mandiri says it will likely turn down a recent request from the government for the country's largest bank to inject fresh capital into ailing state-owned paper producer PT Kertas Kraft Aceh (KKA).
Bank Mandiri president director E.C.W. Neloe told reporters on Monday that though the bank was still in talks with the Office of the State Minister for State Enterprises -- which oversees state- owned companies -- on how to help out KKA, the option of pumping more funds into the firm would be difficult for Bank Mandiri to accept.
"I don't think it would be possible for us to inject more funds into KKA given the company's current situation," he said. "It would also be too much of a burden to extend their loans."
The Office of the State Minister for State Enterprises had previously asked Bank Mandiri to explore the possibility of injecting fresh capital of Rp 200 billion (US$21.5 million) into KKA to prevent the paper firm from collapsing.
According to reports, the office recently told the House of Representative's Commission VI for industry, trade and state enterprises that KKA would need some Rp 200 billion in fresh funds to restart its operations after its management decided to temporarily halt the company's operations in April 2003.
KKA currently has debts totaling Rp 300 billion, of which Rp 165 billion are classified as bad loans by Bank Mandiri.
Neloe explained that the option of injecting fresh capital was simply too onerous to be feasible as KKA's current asset value of between $30 million and $40 million at the most was insignificant compared to its outstanding debts.
Neloe further explained that Bank Mandiri had previously helped KKA out with bailout funds to the tune of Rp 150 billion, but this rescue effort had failed due to serious operational problems resulting from the turning off of gas supplies.
Neloe therefore suggested other solutions to the KKA fiasco, such as simply putting the company up for sale.
The request to inject more funds into KKA would likely put Mandiri at risk, as well, as there was a very real possibility that KKA would default. The level of non-performing loans (NPLs) at Mandiri during the third quarter of 2004 remained stubbornly high at 7.49 percent, above the ceiling of 5 percent set by Bank Indonesia.
Meanwhile, State Minister for State Enterprises Sugiharto said that the government was still considering inviting foreign investors to take a stake in the firm.
Sugiharto, however, admitted that there were no specific investors on the cards as yet and that the government was still drawing up a shortlist of potential rescuers.
KKA ceased operations as it was unable to secure gas supplies to fuel production. Gas supplies to the company were cut off after U.S. energy giant ExxonMobil refused to continue supplying it following KKA's failure to pay an outstanding gas bill of Rp 65 billion.
ExxonMobil's contract to supply gas to KKA is due to run until 2008.
KKA employs 1,035 workers and has an installed capacity of 135,000 tons of packaging paper per year, of which most is sold to local cement companies. The firm stopped paying its workers last year.