Marubeni to complete debt restructuring of Chandra Asri

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.