S'pore court rules against APP creditors

S'pore court rules against APP creditors

Dow Jones, Singapore

The Singapore High Court Thursday ruled against a petition by two European creditors of Asia Pulp & Paper Co. to appoint independent judicial managers for the debt-ridden Indonesian company.

"If I granted the JM (judicial management), there will be a lot of problems, not insurmountable but very difficult," said judge Lai Siu Chiu, delivering the verdict.

As APP was incorporated in Singapore as a holding company, the judicial managers will find it difficult to restructure the group's units in Indonesia and China, Lai said.

The verdict is against the petition by Deutsche Bank Ag (DB) and BNP Paribas, which initiated court action in June to recover the US$193 million and $20 million that APP owes them respectively.

The court's ruling means APP's current management can stay on and the company can continue with the restructuring led by Indonesian Bank Restructuring Agency (IBRA).

The two European banks had argued that IBRA isn't equipped to mandate APP's restructuring due to conflict of interest.

IBRA's dual roles as creditor to PT Bank International Indonesia, or BII, and lead manager of APP's restructuring process would put it in an awkward position, the banks told the court. APP's biggest shareholder, the Widjaja family, once controlled BII.

The appointment of judicial managers from international accounting firms will restore faith and trust among existing creditors and guarantees fair play in APP's restructuring, the two European banks had argued.

However, Justice Lai said: "The Widjaja family can deliver what is required to repay if they pool their resources together."

Last month, IBRA, backed by other big creditors, demanded that APP make a $100 million cash payment as part of the restructuring process. Part of the deal included a $30 million monthly payment into an escrow account.

APP's lawyers said there is currently $60 million in the escrow account.

"If the management can come up with the money, the restructuring will hold," Judge Lai said.

She warned that APP is the largest emerging market defaulter and its Widjaja family-controlled current management must be more serious in their approach toward the restructuring process.

IBRA representatives, an umbrella steering committee of creditors and APP's management are meeting in Singapore Thursday to discuss issues related to the company's cashflow.