Sinar Mas urged to hand over 'free and clear' assets to IBRA

JAKARTA (JP): The government will not accept as collateral Sinar Mas Group assets that have been pledged to foreign creditors, Indonesian Bank Restructuring Agency (IBRA) deputy chairman Mahmuddin Yasin said on Wednesday.

Mahmuddin said IBRA would soon begin a one or two-month due diligence on the list of Sinar Mas assets surrendered as collateral to the agency.

"What we want are free and clear assets ... it is the foremost principle," he said following a meeting with Coordinating Minister for the Economy Rizal Ramli.

"The second principle is that the assets pledged as collateral must be equal to 145 percent (of the group's debt to publicly listed Bank Internasional Indonesia)," he said.

IBRA announced on Monday the government would guarantee Sinar Mas' Rp 12 trillion debt (US$1.2 billion) to BII in a bid to rescue the ailing bank.

The agency said the government would pay the debt to the bank if Sinar Mas defaulted on the loan.

But in return, Sinar Mas is required to provides assets equal to 145 percent of its debt, plus offer a personal guarantee from the group's founding shareholders.

The government's plan to accept Sinar Mas assets has concerned the group's foreign creditors, who have loaned about $12 billion to the group. The group's New York-listed Asia Pulp & Paper alone has about $10 billion in debt, with some $2 billion maturing this year.

IBRA has declined to disclose the assets pledged by Sinar Mas, but agency chairman Edwin Gerungan said BII's Rp 12 trillion loan went to about 45 companies in the group.

Edwin said the assets pledged by Sinar Mas came from these 45 indebted companies.

IBRA, which is a unit of the finance ministry, has been under pressure, including from legislators, to ensure that Sinar Mas provides sufficient assets in return for the government's guarantee.

Some financial analysts have said that Sinar Mas has two relatively unknown companies that have been the group's cash cows. The companies are PT Arara Abadi and PT Winakarya Sakti, which control vast industrial forest areas in Sumatra and Kalimantan. The two companies supply raw material to Sinar Mas' publicly listed PT Tjiwi Kimia and PT Indah Kiat Pulp & Paper.

Experts also have said the value of Sinar Mas' listed companies are currently low due to the weak market conditions and negative sentiment toward the group.

Sinar Mas is the founder of BII. The government recapitalized the bank and now owns a 57 percent stake in it.

IBRA has said that the government must guarantee Sinar Mas' debt to BII to help secure the government's Rp 6.5 trillion recapitalization investment in the bank, and to avoid the huge cost of closing the bank, which would entail repaying depositors' money.(rei)