Merpati creditors may accept debt settlement plan

Merpati creditors may accept debt settlement plan

Rendi A. Witular and Tony Hotland, The Jakarta Post, Jakarta

Creditors of ailing state carrier PT Merpati Nusantara Airlines
are set to approve the company's debt settlement proposal by
converting debt into equity, which would help increase the value
of the airline ahead of a planned privatization program.

Merpati privatization manager Hariyadi Supangkat said the
creditors had basically agreed with the debt settlement scheme
since it was deemed the most feasible option to guarantee the
return of their investments in the airline.

"Based on a recent meeting with our creditors, they have
agreed to our proposal of debt-to-equity conversion. But they are
still waiting for the government's decision on Merpati life-
saving plan," said Hariyadi on Monday.

Hariyadi explained that with such a settlement, it would be
guaranteed that creditors would get back their money along with
profits earned by the airline, as the conversion would help
return Merpati's equity to positive territory and would
eventually boost its value ahead of its privatization.

"We expect the creditors and the government will be able to
execute the plan next month, after auditing Merpati's debts, in
order to help speed up the company's privatization and at the
same time save it from financial difficulties," he said.

At present, Merpati has Rp 1.3 trillion (US$144 million) in
debts and assets worth about Rp 775 billion. Its major creditors
include the government (Rp 225 billion), Bank Mandiri (Rp 230
billion) and Garuda (Rp 246 billion).

The government, after securing approval from the House of
Representatives last month, is set to sell a 49 percent stake in
Merpati to strategic investors next year. The stake on sale could
be raised to 51 percent if the buyers are local investors.

The House and the firm have agreed the planned debt-to-equity
conversion will take place prior to Merpati's privatization.
However, an audit was needed prior to executing the conversion
plan.

Hariyadi said the Merpati management had submitted reports to
State Minister of State Enterprises Sugiharto so that he could
review the company's privatization plan and help make an
immediate decision.

"We hope the privatization plan is included in the new
government's (first) 100-day plan. We have secured approval from
the House and now the (final) decision depends on the government.
Privatization is the only way to keep us afloat," said Hariyadi.

The debt restructuring and a strategic sale to foreign and
local investors are part of the company's restructuring program
set out to save it from bankruptcy.

An initial public offering -- selling shares to public
investors via the stock market -- is planned after the company
completes the sale of shares to strategic investors.

Elsewhere, Director General of Financial Institutions Darmin
Nasution said the Ministry of Finance had yet to audit Merpati
due to the unavailability of funds.

"We want the audit to be completed as soon as possible, but we
still don't have the funds to finance the audit," said Darmin.

Merpati's audit is expected to take between three and four
months, hampering the airline's plans to restructure as soon as
possible.