Marubeni to complete debt restructuring of Chandra Asri

By Kornelius Purba

TOKYO (JP): Following a round of tough negotiations with the Indonesian government, Marubeni Corp. expressed its hope on Tuesday that it would be able to reach a compromise solution next week over a dispute on a new debt restructuring agreement for the petrochemical giant PT Chandra Asri.

Marubeni Corporate Communication Manager Hiroshi Nishizaki said a group of senior negotiators from the publicly listed trading company is currently negotiating with the Indonesian Bank Restructuring Agency (IBRA) in Jakarta and a new Memorandum of Understanding (MoU) is expected to be signed by the two sides next Tuesday.

Nishizaki disclosed that the Financial Sector Policy Committee (FSPC), which compromises several economic ministers and is chaired by Coordinating Minister for the Economy Rizal Ramli, is scheduled to endorse the agreement on the same day in a form of a government decree.

"We try to find the best way to settle the problem. It is still under negotiation now. Our team is now in Jakarta... According to the schedule a new agreement will be reached on Feb. 20," Nishizaki said in an interview with The Jakarta Post at the company headquarters in Takebashi, Tokyo.

Analysts in Tokyo have said that the result of the negotiations is crucial for Marubeni, including its fate at the Tokyo Stock Exchange, and the market is now awaiting results of the negotiations. Therefore the company will take all possible measures to resolve problems.

"Chandra Asri operations are very good. But financially there is a problem caused by a big burden of interest and debt repayment," Nishizaki said when asked about the value of the petrochemical industry in West Java for Marubeni.

A spokesman said Marubeni and IBRA signed a MoU on June 9 last year. According to the agreement, Marubeni would convert about US$ 100 million of its loan into equity in Chandra Asri. The Japanese giant also agreed to provide Chandra Asri with 12 years to repay its foreign debt with an interest rate of 2.5 percentage points above the London Interbank Offering Rate (LIBOR).

Chandra Asri owes around $700 million to a foreign consortium led by Marubeni, including the Bank of Tokyo, Mitsubishi Bank and Fuji Bank.

Marubeni's partners in the joint venture are Sowa Denko and NEC.

The petrochemical company, whose founding shareholders include former president Soeharto's second son Bambang Trihatmodjo and tycoon Prajogo Pangestu, also owes around Rp 3 trillion to IBRA.

Under the June agreement, 80 percent of the company's equity would be owned by IBRA, and the rest by Marubeni. Before that, Indonesia's shares were 76.2 percent with the remaining 13.8 percent held by Japanese shareholders.

Nishizaki said the major lender in the consortium is Japan Bank for International Cooperation (JBIC), a state owned firm. The Japanese government's involvement is crucial due to the size of capital needed for the project, he noted.

"The June MoU is very fair for both Indonesian and Japanese sides," Nishizaki insisted, adding that the memorandum was made based on the result of a feasibility study by the Deutsche Bank as an independent third party.

According to Nishizaki, the Japanese company at that time was very confident that the government would honor its own commitment because then coordinating minister for economy, finance and industry Kwik Kian Gie had signed a government decree endorsing the June agreement.

"We believe then that the government would honor its commitment," Nishizaki remarked.

Strong criticism

However following strong criticism from the House of Representatives, economists, and the press, the government in November scrapped the June agreement.

The government also forced Prajogo to hand over his personal assets in some 20 companies, including publicly listed PT Barito Pacific, as part of a new restructuring plan for local debt.

However, it was found only later that Prajogo had pledged his shares in three key firms -- pulp producer PT Tanjung Enim Lestari, timber company PT Musi Hutan Persada, and Barito Pacific -- to other foreign creditors.

In the new scheme under negotiation, Prajogo would have a 49 percent stake and IBRA would keep a 31 percent stake at Chandra Asri.

The plant has been controversial since its construction in the early 1990s in Cilegon, West Java. The Japanese press at that time were very critical about the joint venture. But Soeharto decided to go ahead with the plan saying the company would become world class.

"The problems existing between IBRA and Prajogo is none of our business. It is an internal issue for the Indonesian side," Nishizaki said, commenting on Prajogo's problems.

The FSPC has also demanded that Marubeni revise the agreement.

According to Nishizaki, the government had asked Marubeni to increase its 20 percent stake in a debt equity swap, extend the 12-year period of debt repayment to 15 years.

The government also demanded that the interest rate be cut down to LIBOR rate.

According to the Marubeni spokesman, it is impossible to give a LIBOR flat rate, and is also very difficult to persuade the Japanese lenders to extend the repayment period.

He also contended that Marubeni had no plan to increase its stake, because the company itself is facing a serious problem in downsizing its assets.

"It is impossible to give a LIBOR flat rate. It has never happened in any business transaction before," said a spokesman.

Sources close to the negotiation in Jakarta said Marubeni is most likely to agree to reduce the interest rate from 2.5 percentage points to 1.5 percentage points above the LIBOR rate.

"That will be our biggest concession. It is very unlikely for us to increase our stake," sources told the Post on condition of anonymity.

Separately, Dow Jones quoted an official of IBRA in Jakarta as saying on Tuesday that British oil company BP Amoco PLC had expressed an interest in investing in PT Chandra Asri.

Under Chandra Asri's still unresolved debt restructuring deal, one option is for Chandra Asri to find a strategic partner, said Riswinandi, the head of IBRA's asset management credit division.

He said BP had already approached IBRA to express interest in the local company.

Riswinandi said Marubeni now has three options - loan restructuring, find a strategic partner, or liquidate.

He said BP Amoco could take a stake in Chandra Asri if Marubeni agrees to that option.

"BP will be the preferred bidder because they've already talked to IBRA to express that they're interested in Chandra Asri," Riswinandi told reporters.