Prijadi has yet to endorse Chandra Asri debt workout

Prijadi has yet to endorse Chandra Asri debt workout

JAKARTA (JP): Finance minister Prijadi Praptosuhardjo has not
yet endorsed the debt restructuring workout for olefins producer
PT Chandra Asri, sparking concern that the high profile
restructuring deal is on the brink of collapse, a senior official
said on Friday.

Secretary of the Financial Sector Policy Committee (FSPC)
Safruddin Tumenggung said the endorsement from the finance
minister was essential to force the Indonesian Bank Restructuring
Agency (IBRA) to finalize the technical details of the debt
workout, which was approved by the FSPC three weeks ago.

"What I know as the secretary of the FSPC is that up to this
moment (late Friday) the finance minister has not yet endorsed
(the debt workout)," he told a press conference.

"The FSPC guideline (decision) can only be effective if it is
endorsed by the finance minister. If not, there must be another
process of discussion (with the minister)," he added.

According to Law No. 17/1999 governing IBRA, the agency is
under the supervision of the finance ministry.

It is not clear, however, why Prijadi has not yet endorsed the
FSPC's decision.

Safruddin confirmed the report that appeared in the Friday
edition of this newspaper, quoting a source as saying that IBRA
had rejected the debt workout that had been approved by the FSPC.

"On May 14, IBRA sent a letter to the FSPC asking the
committee to finalize the technical details of the debt workout,"
he said.

"But we replied in a letter to IBRA saying that according to
the law, the FSPC could go into the technical details," Safruddin
added.

The FSPC, which groups several senior economic ministers,
including the finance minister, and is chaired by Coordinating
Minister for the Economy Rizal Ramli, was formed in 1999
initially to provide bank and corporate debt restructuring
guidelines, particularly for IBRA.

But in the course of its development, the committee has
appropriated greater executive powers to itself and now has the
final say on whether to approve or disapprove any debt
restructuring workout worth more than Rp 1 trillion (US$91
million)

The House of Representatives' Commission IX on the state
budget and finance, however, concluded during a meeting earlier
this week with the finance ministry that the FSPC should end its
intervention in the restructuring program conducted by IBRA.

The House said that the committee should only provide policy
guidelines.

After 19 months of a difficult negotiating process,
particularly with Japan's Marubeni Corporation, Chandra Asri's
lead foreign creditor, the FSPC finally decided late last month
on a debt restructuring workout for Chandra Asri. Marubeni
approved the FSPC's decision.

Under the restructuring proposal, Marubeni will convert US$100
million of its total $730 million in loans to Chandra Asri into a
20 percent equity stake in the company, and stretch out the loan
repayment period to 15 years at an interest rate of 1.5
percentage point above the London Interbank Offered Rate (Libor).
Marubeni also agreed to drop its status as the sole creditor of
Chandra Asri, allowing IBRA to also become a creditor with an
outstanding loan of $50 million.

The FSPC has claimed that this is an optimal restructuring
workout, which is better than the initial deal approved last year
by President Abdurrahman Wahid in which the repayment period was
only 12 years, interest rate was 2.5 percentage points above
Libor and Marubeni was the sole creditor.

But IBRA has insisted that Marubeni must convert more loans
into equity in Chandra Asri. Agency officials have said that the
greater equity participation of Marubeni is much more important
than the other restructuring terms.

Under the FSPC decision, Marubeni is to convert $375 million
of its $425 million loan to Chandra Asri into a 31 percent
equity, while the remaining shares will be held by company
founder Prajogo Pangestu.

Elsewhere, Safruddin said that the FSPC decision might not be
optimal in terms of company restructuring, but it was the best
that could be done in terms of industrial restructuring and the
benefit to the overall economy.

Chandra Asri, the country's only olefins producer, has been
regarded as a strategic industry.

Marubeni chief operating officer in Jakarta T. Murakami told
the Jakarta Post earlier that a quick finalization of the Chandra
Asri debt saga was vital to save the latter, warning that further
delays on the technical details could severely damage Chandra
Asri as it could run out of cash and be forced to halt production
by the end of June.

If this happened, Chandra Asri would lose its customers to
competitors in Thailand, Singapore and Malaysia, Murakami
cautioned.

The Japanese government has also been concerned about Chandra
Asri's debt workout execution because the bulk of the Japanese
loans to the company were derived from the now defunct Japan
Export and Import bank (now merged into the Japan Bank for
International Cooperation). (rei)