Wed, 11 Jun 2003

Some principal creditors sign APP debt restructuring scheme

M. Taufiqurrahman, The Jakarta Post, Jakarta

A number of principal creditors of Asia Pulp & Paper Co. Ltd. (APP) of Singapore signed a nonbinding debt restructuring plan on Tuesday as an initial step toward reaching a final settlement for the US$6.9 billion debt owed by the company's Indonesian subsidiaries.

The vice chairman of APP's restructuring team, Gandi Sulistyanto, said that 40 percent of the principal creditors had agreed to sign the agreement, referred to as a key terms restructuring summary.

Under the agreement the Indonesian subsidiaries will be asked to repay $1.2 billion of their $6.7 billion debt within 10 years.

Also, APP, which is controlled by the Eka Cipta family, can be declared in default if 75 percent of the creditors agree.

If the creditors fail to obtain the 75 percent support for default, they can take a second vote, with a 67 percent requirement, a third (51 percent) and fourth (25 percent). All stages must be completed within 180 days.

Tuesday's agreement also enables creditors to convert their loans to equity and to take over APP's Indonesian companies.

Among the principal creditors that signed the agreement were the Indonesian Bank Restructuring Agency (IBRA), nine countries under the umbrella of Export Credit Agencies (ECA), two Japanese trading companies, and the rupiah bondholders.

U.S. bondholders failed to sign the agreement as their country's security law prohibits creditors from making a deal before a confidentiality agreement is established.

After the signing of the agreement, key terms will soon be translated into a legally binding restructuring scheme that will be signed in early July 2003.

Nicky Tjan, a legal advisor to APP, said that the key terms would soon be discussed with the creditors that had not signed Tuesday's agreement.

"I think, shortly after this signing, we shall speak to the other creditors, especially bondholders, who have not been involved in this negotiation, and try to explain this deal," Tjan said.

Despite the signing, hundreds of U.S. dollar bondholders were left in the cold as they were excluded from the negotiation on the debt restructuring mechanism. The creditors were absent from the negotiation because they had no representative for the dialogue.

Credits held by the bondholders account for 56 percent of APP's debt, worth $6.5 billion. Creditors who do not sign the debt restructuring scheme will not get credit repayment from APP, which thus far has placed around $279 million in an escrow account.

APP defaulted on its $13.9 billion debt in March 2001. That was one of the largest defaults in the history of emerging markets. The debt included $6.7 billion owed by APP's four Indonesian paper companies, PT Indah Kiat Pulp & Paper, PT Tjiwi Kimia, PT Pindodeli Pulp & Paper and PT Lontar Papirus Pulp & Paper Industries.

Apart from those in Indonesia, APP also has a number of production facilities in China.