Paper conglomerate suffers swap losses

Paper conglomerate suffers swap losses

JAKARTA (JP): Majority shareholders in the Sinar Mas Group,
the country's second biggest conglomerate, have injected
"voluntary equity contributions" to cover the US$66.6 million in
derivative and swap losses incurred by two of its listed firms.

PT Indah Kiat Pulp and Paper released a statement Monday night
that the company -- which also reported a 36 percent rise in its
net profits last year to Rp 146.9 billion from 1993 -- had
suffered derivate losses totaling Rp 78 billion.

Another listed Sinar Mas subsidiary, paper maker PT Tjiwi
Kimia, on Sunday announced Rp 70.3 billion in currency and
interest rate swap losses for 1994.

Tjiwi said its 1994 after-tax profit fell 35 percent from a
year ago to Rp 50.79 billion, despite a 36 percent increase in
net sales to Rp 840.51 billion.

"Sinar Mas has no choice but to make the contributions ...
they really need to enhance their reputation to potential
investors," David Chang, head of research at PT Sigma Batara
Securities, told The Jakarta Post yesterday.

Eka Tjipta Widjaja, chairman of Sinar Mas, said last year that
the losses would not affect earnings because the majority
shareholders, his family, would absorb them.

Indah Kiat's statement also said: "The majority shareholders
made voluntary equity contributions to fully cover these losses."

"It turned out that Eka kept his word," said Chang, who
obtained the latest balance sheet of the two firms.

To cover the Rp 70.3 billion loss in Tjiwi Kimia, Chang said,
the Sinar Mas Group had injected Rp 71.97 billion.

The group had also fully covered the losses in Indah Kiat, he
added.

"Investors, however, will always remember these losses as a
reflection of the management situation of the two firms," Chang
said, adding that the two firms are still in "good shape" thanks
to current high pulp prices.

New York

Chang also said that the equity injection made by Sinar Mas'
majority shareholders were required to support the group's
listing on the New York Stock Exchange under the registered name
of Asia Pulp and Paper (APP).

APP's listing was carried out last month and received a
lukewarm market reaction.

APP's offered price reached a mere $11.50 per share, a
substantial discount to the indicative range between $13 and $16.

"If Sinar Mas does not cover Tjiwi's and Indah's losses, APP
will be in a serious trouble," Chang said.

In the meantime, Indah Kiat closed yesterday at Rp 2,525, down
from Rp 2,500 on Monday. Tjiwi closed at Rp 3,300, up from Rp
3,050.

Analyst Bara Katoppo of H.G. Asia said yesterday's closing was
an indication that investors, having learned about Sinar Mas'
losses and equity injection, had begun to "buy on facts".

"About a week ago, Tjiwi was priced at around Rp 4,000 and
Indah around Rp 3,000 but there was some selling....They
(investors) were apparently selling on rumors," Katoppo told the
Post yesterday. (hdj)