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.