PT Indorayon fails to make coupon payments

JAKARTA (JP): Publicly listed pulp and rayon fiber maker PT Inti Indorayon Utama announced on Tuesday that it would be unable to meet coupon payments due this year.

The company said the temporary closure of its mill and the adverse impact from the current economic crisis caused the defaults.

"The temporary mill closure impacts on Indorayon's ability to meet coupon payments for its 9.5 percent senior notes due 2000 and 7 percent euro convertible due 2006," the company said in a statement.

Indorayon was due to make a coupon payment of US$3.4 million on April 15, 1999, for its senior notes and $4.2 million on May 2, 1999, for its euro convertible.

Indorayon said it had appointed Donaldson, Lufkin & Jenrette as its financial advisor and was crafting plans to implement a debt-restructuring program.

The company said it planned to hold a meeting with its creditors over the next few weeks.

Indorayon has some $360 million in overseas loans.

Indorayon said its operation continued to be affected by civil disturbances combined with a lack of law and order enforcement at Porsea, North Sumatra, where its primary production facility is located.

Deliveries of raw materials to the Porsea mill came to a standstill for nearly four months last year and had been suspended since January this year, resulting in significant losses in production and revenue, the company said.

"The situation was further confused by a statement issued in late March in which the President announced Porsea mill operations would be temporarily suspended, due to attacks on Indorayon property and personnel and general rioting in the surrounding area," the statement said.

President B.J. Habibie issued the temporary closure order through North Sumatra Governor T. Rizal Nurdin, raising confusion among Indorayon's management, who had not received any official closure statement.

The President also ordered an independent team to audit the impact of Indorayon's operation on the environment and people's health.

Nongovernmental organizations and locals have accused Indorayon of polluting the environment, including the scenic Toba Lake.

"Indorayon is committed to protecting natural resources in its care," the company said in defense.

A company representative said it was impossible for Indorayon to damage the Lake Toba environment because the geographical position of the Porsea pulp mill was lower than the position of Lake Toba.

Analysts said Habibie's decision to temporarily suspend operations at the mill was based on political considerations to quell increasing local unrest.

Economists said closing down Indorayon would create more difficulties for the company to meet its foreign debts, which is detrimental to rebuilding foreign investor confidence.

Indorayon is a unit of the Raja Garuda Mas Group, a diversified conglomerate controlled by businessman Sukanto Tanoto.

Sukanto also controls the Singapore-registered Asia Pacific Resources International Holdings Ltd., which decided in January this year to divest its Indorayan holdings. (rei)