New York Court rules in favor of Asia Pulp and Paper

New York Court rules in favor of Asia Pulp and Paper

Leony Aurora, The Jakarta Post, Jakarta

The New York Supreme Court has ruled in favor of the Asia Pulp
and Paper Company (APP), denying a motion by its United States
creditors aimed at supporting a previous ruling on collateral
rights and halting the current litigation process in Indonesia.

Judge Helen Freedman said in the final disposition signed on
Feb. 5, that APP had already disclosed that any judgment obtained
by creditors from a U.S. court concerning the bonds issued by APP
would not be enforced by the courts of Indonesia.

"The plaintiffs knew that they could only enforce their rights
to the Indonesian collateral by litigating there," the judge said
in the court disposition, a copy of which was made available to
The Jakarta Post by law firm White & Case, which represented APP,
on Saturday.

Several creditors, including Gryphon Domestic VI LLC, in
October 2003 won a suit in a New York court to claim collateral
from APP subsidiaries, Indah Kiat Pulp and Paper Corporation and
PT Lontar Papyrus Pulp and Paper Industry, who guaranteed the
bonds.

The notes, worth more than US$62.5 million, were issued in
1994 and secured by the Indonesian properties owned by APP
subsidiaries.

However, Indah Kiat and Lontar stopped the creditors' move by
filing a lawsuit at the Bengkalis, Riau court in November last
year, claiming that a judgment from the Indonesian courts was
required to enforce collateral rights.

The creditors responded by filing petitions asking the New
York Supreme Court to stop the APP subsidiaries from further
prosecuting their actions and to issue a permanent injunction
against their litigation.

However, the creditors' efforts failed as the Supreme Court
said in its ruling that:"Litigation was a pre-disclosed risk of
investment that the plaintiffs had voluntarily accepted."

"Anyone investing in foreign notes needs to weigh this risk
(against the benefits) and take it seriously," David Hill, a
commercial litigator at White & Case, said in a statement in
response to the APP win.

"This decision is significant not only for the APP global
restructuring but also for companies involved in international
litigation," he said.

APP, the world's 10th largest paper maker, owned by the
Widjaja family, has been struggling for three years to reschedule
its $13.9 billion debt divided among its companies in China and
Indonesia, with each responsible for $7.2 billion and $6.7
billion respectively.

The Indonesian Bank Restructuring Agency (IBRA), who was APP's
largest single creditor with US $880 million owed, signed last
year a restructuring plan for the debts owed by APP's four
Indonesian units.

So far, only 40 percent of the creditors agreed to the scheme,
which gives APP up to 22 years to repay its debts. To be
effective, it needs 90 percent of creditors to sign up.

IBRA later sold the debt to Orleans Investment of the U.S. for
the heavily discounted price of $213 million.