Prabowo may let go of Kiani
Rendi A. Witular, The Jakarta Post, Berau, East Kalimantan
Prabowo Subianto, the former son-in-law of ex-president Soeharto, is ready to sell his controlling stake in troubled pulp producer PT Kiani Kertas if there are no investors willing to inject badly needed fresh capital into the company.
Kiani vice president director Widjono Hardjanto said the major shareholder had agreed to relinquish shares within three months in order to prevent the firm from going bankrupt due to a lack of working capital amid massive debts.
"Pak Prabowo has said that he will sell the company to new investors if there are no fresh funds to help Kiani get back into full operation and avoid closure," said Widjono to reporters during a media visit to the company's plant over the weekend.
At present, Kiani is 99.99 percent owned by Fayola Investment Limited, a company controlled by Prabowo under his flagship PT Nusantara Energy.
Prabowo, who was a former commander of the Army's special forces, Kopassus, during the twilight days of the Soeharto era, paid some Rp 7.1 trillion (about US$750 million) to the now- defunct Indonesian Bank Restructuring Agency (IBRA) in 2003 for a controlling stake in the company.
The company formally belonged to Mohammad "Bob" Hasan -- a close ally of Soeharto -- and was surrendered to the IBRA after the timber tycoon defaulted on massive debts to a number of banks following the Asian financial crisis of the late 1990s.
Aside from purchasing the stake, Prabowo also teamed up with state-owned Bank Mandiri to take over part of Kiani's debts worth about $201 million.
However, Kiani remained unable operate at full capacity after the takeover, due mainly to a lack of working capital, leaving it incapable of paying its debts to the bank other overseas creditors.
Widjono said Kiani shareholders were currently negotiating with ten overseas investors who were interested in taking over the company. However, the company's massive debts were proving to be a major obstacle.
"Some investors are willing to inject working capital to enable it to operate at full capacity, and some want a controlling stake. But the debt problem has become a stumbling block," he said.
Kiani will need some $50 million just to revive the business so that it can pay its debts to Mandiri no later than 2007, as was agreed to in a restructuring agreement with the bank that was signed late last year.
Kiani's bad loans have contributed to Mandiri's high gross non-performing loans (NPL) ratio of 7.2 percent as of September last year, as compared to the central bank's 5 percent limit.
Kiani managing director, Stefan Looho, meanwhile, said the working capital was needed to help boost the company's profit by increasing its production output to its existing installed capacity of 500,000 tons per year.
"At present, it can only produce 300.000 tons of pulp per year due to the lack of funds to buy raw material under a long-term contractual schemes in order to ensure continuity of supply," said Stefan.
The company could reap at least $100 million in operational profits per year if it could gear up to full capacity, with a pulp price set at $460 per ton.
With current rates of production, the company will only post some $30 million in profits.