Procedural problem may affect APP's subsidiary

Procedural problem may affect APP's subsidiary

JAKARTA (JP): Indonesia's 1994 foreign investment deregulation
package has been praised as the most liberal in the country's
history.

However, the implementation of the new policy measures
continues to be hindered by misinterpretation and, sometimes,
inadequate knowledge on the part of government officials.

The procedural problems recently encountered by Singapore-
based Asia Pulp & Paper (APP), which plans to float shares on the
New York Stock Exchange, provide one example.

One of APP's subsidiaries, PT Purinusa Eka Persada, is
reported to have run up against legal problems in connection with
changes to its equity capital and the entry of foreign
shareholders.

However, Indra Widjaya, one of PT Purinusa's commissioners,
said yesterday that PT Purinusa had satisfied all the legal
requirements for the changes, including the entry of APP as the
controlling shareholders.

"Both the ministry of justice and the Investment Coordinating
Board (BKPM) have approved the amendments to PT Purinusa's
statute regarding the equity increase and the entry of the
foreign shareholders," Indra asserted.

At the same time legal consultants expressed bewilderment that
the ministry of justice had ratified the amendments prior to the
changes being approved by the BKPM.

Asia Pulp & Paper and PT Purinusa, which are members of the
Sinar Mas Group, are controlled by Eka Tjipta Widjaya and his
family as the majority shareholders.

"We just got a letter from Wardidjasa today stating that the
amendments to Purinusa's statute have been recorded by the BKPM,"
said Indra, who is also president of Bank International
Indonesia, yesterday.

Wardidjasa is a deputy to the BKPM chairman in charge of
evaluation and industrial licensing.

One legal consultant argued that in order to amend the statute
of a domestic investment company to allow the entry of foreign
investors as new shareholders, the existing regulations require
prior approval from the BKPM, and not mere "notification of
recording."

Under the correct procedure, the legal consultant said,
amendments to a company's statute could be ratified by the
ministry of justice only after the BKPM had approved the changes.

Foreign investors

PT Purinusa obtained its domestic investment license from the
BKPM last September. The license allowed the company to operate
in the manufacture of tissue paper, corrugated sheet box and
napkins, with a planned investment of Rp 16.3 billion (US$7.4
million) to be financed wholly with equity capital.

In October, the shareholders changed the statute of the
company to increase its equity capital and to bring in the
Singapore-based company, Asia Pulp & Paper, as a new controlling
shareholder with 80 percent equity, valued at Rp 868 billion.

The amendments increased PT Purinusa's equity capital more
than 66 fold, from Rp 16.35 billion to Rp 1,085 billion.

The capital increase, according to records at the BKPM, was in
order to finance Purinusa's acquisition of a 54.4 percent stake
in PT Indah Kiat Pulp and Paper, all of the equity shares in PT
Pabrik Kertas Tjiwi Kimia and a 20 percent equity in PT Lontar
Papyrus.

PT Indah Kiat and PT Lontar Papyrus are both foreign
investment ventures. Both PT Indah Kiat and PT Tjiwi Kimia are
listed on the Jakarta stock exchange.

The records show that PT Purinusa applied for the BKPM's
approval of the amendments in early November but that the
application was rejected in mid-November.

"The proposed amendments were not in line with the regulations
because the changes increased the equity capital way above the
planned investment," Richard P. Napitupulu of the BKPM's planning
department said.

Napitupulu said foreign investors who had not operated in
Indonesia were allowed to buy into functioning domestic companies
only for the purpose of rescue.

"But PT Purinusa has withdrawn its application from the BKPM
and, to my knowledge, the company has not submitted any further
application," Napitupulu added.

Director for civil law affairs at the ministry of justice,
Ratnawati Widjaya, acknowledged, in a letter dated March 23, 1995
to the BKPM chairman, that the ministry had made an
administrative mistake when it ratified the notary deed amending
PT Purinusa's statute, prior to the amendments' being endorsed by
the BKPM.

Government Regulation No.20/1994, which extensively
liberalizes foreign investment in Indonesia, does allow a
domestic investment company to admit foreign shareholders without
changing its status to that of a foreign investment company.

"But the entry of foreign shareholders should be based on
prior consent from the BKPM," Ratnawati noted in her letter, a
copy of which was obtained by The Jakarta Post.

Indra disagreed, contending that PT Purinusa was not required
to obtain approval from the BKPM for the amendments to its
statute, despite the entry of foreign shareholders.

"We are required only to report such changes to the BKPM and
to obtain ratification from the ministry of justice," Indra said.

Approval

Indra said that in the case of investment expansion, BKPM
approval is necessary.

" We have not officially submitted such an application to BKPM
even though PT Purinusa does plan an investment expansion to
increase the capacity of its paper industry," he added.

He said the difficulties might have been caused by
misunderstanding or confusion regarding the amendments to PT
Purinusa's statute, on one hand, and its planned investment
expansion, on the other.

Indra said PT Purinusa was still preparing an official
application to the BKPM regarding its investment expansion.

Meanwhile, informed sources said PT Purinusa's business
expansion programs had been included in the prospectus of APP's
initial public offering in New York.

The legal consultants seemed worried that the problems faced
by PT Purinusa might affect the credibility of other Indonesian
companies, such as PT Telkom and Asia Pacific Resources
International Holdings Ltd., which also plan to list their shares
on the New York Stock Exchange. (vin)