Mandiri balks at helping out debt-laden KKA

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.