The energy of growth: trust

The energy of growth: trust
Trust: The Medco Group approach to growth

As professionals, the employees, management and shareholders
of Medco Group are convinced that in business, trust comes above
all else.

Like in any business relationship, losing trust would
instantly ruin a company's image and, slowly but sure, sink it.

And Medco, as a leading name among the locally-owned
corporations in Indonesia, maintains this spirit at all times.

In term of debts, for instance, Medco has consistently paid
off its debts despite the recent economic difficulties brought
about by a protracted economic crisis during which the
reputations of many national companies remain sullied with debt
problems.

When the crisis began in 1997, the group's total debt reached
US$709 million (see graph B) and dropped to around $700 million
in 1998 and $500 million in the following year. During 2000,
Medco managed to shrink its debt obligation to less than $200
million. Today, the group has almost fully completed the
restructuring of its debts with only $50 million left so far this
year.

This means that, over the course of three years, Medco has
paid back and structured more than 90 percent of its debt.

The payment of the remaining debt has been rescheduled in
accordance with a pure and bilateral business agreement between
the Medco Group and its creditors.

According to Hilmi Panigoro, president and CEO of Medco Group,
the settlement of debt obligations is not as easy as waving
hands.

"Hard work, plus a lot of money, energy and thought has been
spent in tiring negotiations with creditors with highly varied
interests and desires," he said.

The debt restructuring included a combination of cash
settlements, debt-to-equity swaps, and rescheduling. In several
cases, the owners and founder have to sacrifice their assets and
reduce shares in a bid to meet their strong commitment of
professionalism.

Without this awareness of the owners, particularly the
founder, it would be all but impossible for a business
undertaking, squeezed by debt, to settle Medco's debt
restructuring.

And many thanks to the high level of trust from its creditors,
the group has also been finally able to achieve win-sin solution
with its local and foreign partners during the negotiations.

Without adequate corporate debt restructuring, the recovery
that this nation has been so dearly in need of would prove merely
illusory.

The Medco Group does not want to allow this nation to indulge
in dreams borne of fantasy, but rather wishes to demonstrate
commitment with concrete measures -- even though the cost of this
commitment is high, and must be paid by the owners and the
founders.

"We here at Medco are blessed as the founder, Arifin Panigoro,
was willing to make sacrifices to save the company," Hilmi
explained.

During the severe economic difficulties, the country and its
business community lost trust from anyone.

While undergoing significant growth at that time, Medco,
naturally, attracted fund managers in the area to offer its
short-term and mid-term financing with a roll-over facility. But
when the financial crisis hit, these fund managers hastily
withdrew their funds and their trust as well.

Mismatch in financing soon followed. The funding facilities
were obtained for short and mid-terms, but the investments were
intended for long-term repayment, and the projects concerned were
still at the development phase.

"Well, the assets had yet to generate an income, but the funds
were withdrawn. In this case, default in debt payment became
inevitable. Like it or not, there was cross-default," recalled
Hilmi.

The main point was that, prior to the 1997-1998 crisis, the
credits obtained by Medco Group, from domestic or offshore
sources, were all in a healthy state. Only when the crisis
erupted did they become bad debts.

In the case of the group's obligation to Bahana, one of the
creditors, the group has paid most of the principal, and the
interests in accordance with market mechanisms, namely without a
discount.

The remaining debt to Bahana will be settled, at the latest,
by the end of October 2002, Hilmi said.

Meanwhile, the group's obligations to the Indonesian Bank
Restructuring Agency (IBRA), a restructuring proposal has been
put forward. In keeping with the target set by IBRA, an agreement
on the settlement of this obligation has just been reached.

Without the sacrifices by its owners and founder, the group
would not have been able to settle all its obligations to save
and nurture the company and, in doing so, finally help the nation
out of the crisis.

Such efforts have been highly hailed by local and overseas
investors and creditors alike.

In its efforts to expand its operational territory to include
some foreign parties in its businesses while remaining its
identity as a national company, Medco's subsidiary, the publicly-
listed PT Medco Energi Internasional, set up a strategic alliance
with Thai state oil company, PTTEP.

"This cooperation combines two powers. Medco is an expert in
the onshore oil exploration and production, while our partner,
PTTEP, in leading in the offshore gas production," Hilmi said.

On March 12 this year, Medco Energi Internasional proudly
received Eurobond worth $100 million issued by MEI Euro Finance
Ltd. with Credit Suisse First Boston (CSFB) as the lead manager.

"This is a prestige for an Indonesian national company," Hilmi
proudly said.

According to Sugiharto, finance director at Medco Energi, the
issuance of the Eurobond reflected the return of Indonesian
corporation in the global arena.

Kim Hee-Nyeon, president of PT Aiti Investment, who once
became an arranger for the issuance of $65 million Eurobond for
Medco Group back in 1997 firmly admired the high-class work
standards of the group's management.

"... Even though the group delayed the payment due to the
crisis, Medco Group has been successfully paid all of the debt
completely two years after the debt rescheduling," Kim said.

"I strongly believe that the excellent recognition from the
offshore investors was one of the main factors of the success of
the US$100 million Eurobond to Medco Group recently," he added.

Gustiaman Deru, an executive of CSFB Global Workouts & Special
Situation, shared his experience.

"We were very impressed especially with the high
professionalism and problem solving attitude of the group started
from planning and implementation of the debt restructuring and
followed by the recent acquisition of substantial control of
Medco Energi by PTTEP," he said.

According to him, such an outstanding performance of a local
company will always help bring positive impacts and image to the
country.

"It also represents continued interests of capital investment
from industry players for Indonesian companies with strong and
healthy balance sheet combined with excellent management team,"
Deru added.