Marubeni Corp. insists on old Chandra Asri debt restructure plan

JAKARTA (JP): Japan's Marubeni Corp. has insisted the government honor the old debt restructuring agreement with petrochemical giant PT Chandra Asri, according to Chairman of the Indonesian Bank Restructuring Agency (IBRA) Edwin Gerungan.

Edwin said here on Thursday that IBRA had proposed a new debt restructuring plan which included a lower interest rate, longer maturity period, and greater equity participation in Chandra Asri by the Japanese lender.

"But they still demand the old MoU ... It's a tough (negotiation)," he told reporters, referring to the Memorandum of Understanding reached by the government and Marubeni in June 2000.

"But we'll continue to negotiate ... We don't want to return to the old MoU," he added.

IBRA resumed negotiation with Marubeni earlier this week.

Chandra Asri owes around US$700 million in debt to a foreign consortium led by Marubeni. The petrochemical firm also owes around Rp 3 trillion to IBRA.

Under the existing MoU, Marubeni would convert around $100 million of its loan into equity in Chandra Asri, while the government via IBRA would convert the local debt into an 80 percent equity.

Marubeni also agreed to give Chandra Asri 12 years to repay the foreign debt with an interest rate of 2.5 percentage points above Libor (London Interbank Offering Rate).

But the Financial Sector Policy Committee (FSPC), which oversees major corporate restructuring in the country, changed its mind following criticism that the government was exposed to covering future liabilities of Chandra Asri with its majority ownership in the company.

The FSPC, which groups several senior economic ministers, managed to force Chandra Asri founder Prajogo Pangestu to surrender personal assets as part of a new restructuring plan for the local debt. Under the new plan, Prajogo would have a 49 percent stake in Chandra Asri, while IBRA would have a 31 percent stake.

Prajogo has surrendered ownership in some 20 companies to IBRA, but ownership in three companies, including pulp producer PT Tanjung Enim Lestari, timber company PT Musi Hutan Persada, and publicly-listed timber giant PT Barito Pacific has been pledged to other foreign creditors by Prajogo.

After due diligence, the FSPC finally agreed to a second mortgage on the three assets, whereby the remaining proceeds from the sale of the assets would be pledged to IBRA.

After reaching a new agreement with Prajogo, FSPC then pushed IBRA to seek a new agreement with Marubeni.

The June MoU expired at the end of last year. But in November, Marubeni expressed agreement to lower the interest rate of the Chandra Asri foreign debt to 1.5 percentage points above Libor.

However, the government still insists on a rate equal to Libor.

The government has also demanded Marubeni take a greater equity position in Chandra Asri, currently operating in the red.

Chandra Asri has been a controversial company since construction started on its petrochemical plant in the early 1990s.

Chandra Asri founders, which include a son of former president Soeharto, somehow managed to convince state-owned banks to finance the project, located in West Java's Cilegon industrial city, without proper analyses of the business plan.

Several Japanese lenders including Bank of Tokyo-Mitsubishi, Fuji Bank and JICA joined Marubeni to help finance the project.

But the Asian financial crisis that started in the middle of 1997 catapulted Chandra Asri into deep financial trouble.(rei)