Timor proposes US$840m loan to finance car plant

Timor proposes US$840m loan to finance car plant

JAKARTA (JP): PT Timor Putra Nasional has proposed US$840
million in loans from a syndication of state and private banks to
help finance the construction of its manufacturing facilities in
Cikampek, West Java, a company executive said.

President of PT Timor Putra Nasional, Hutomo Mandala Putra, in
a hearing with members of the House of Representatives Monday
evening, said the amount was still being considered by the bank
syndication.

He said a decision on loan syndication was expected next
Monday.

He said Timor Putra would also spend $600 million from its own
financial resources to build the facilities.

"We have not asked for special facilities such as soft loans
for the project," he said in the hearing with the House's
Commission X on science and technology.

He said his company expected the loans to carry commercial
interest rates.

Hutomo, the youngest son of President Soeharto, said he was
optimistic Timor Putra would be able to repay the loans within
six years, including a two-year grace period.

The government granted Timor Putra exclusive rights to
manufacture a so-called "national car" last year. It is currently
cooperating with South Korea's Kia Motors Corp. to produce the
cars.

Fully assembled Sephia sedans -- renamed Timor -- are
presently imported from South Korea because Timor Putra's
production facilities are still being built.

The national car receives import duty and luxury tax
exemptions, driving its cost down 60 percent over other cars in
the domestic market.

The car should have a local content of 20 percent by the end
of the first year of production -- which falls in October -- 40
percent by the second and 60 percent by the third.

The government in May ordered a consortium of 13 banks, led by
state-owned Bank Dagang Negara, to help finance Timor Putra's
manufacturing facilities.

Latest reports said the banks had not reached a decision on
how much they would lend to the company, nor which banks were
willing to participate in the syndication.

Kia plight

Responding to questions about the financial plight currently
faced by Kia in South Korea, Hutomo said he was confident that
Kia's problems would not affect Timor's operations.

"We are not worried... because what we are getting from Kia is
the product's platform technology, not parts of the products," he
said.

"So whatever happens to Kia will not have a direct effect on
us," he said.

Kia, South Korea's eighth largest conglomerate, avoided
becoming insolvent after its credit banks decided early last week
to apply an interbank pact aimed at preventing insolvencies to
the group and granted it a two-month grace period.

Kia is saddled with $10.8 billion of debt, including $6.8
billion borrowed from banks. It is the sixth South Korean
conglomerate that has gone insolvent or has had to be bailed out
since January.

Hutomo said the technology transfer Timor Putra had received
from Kia was enough to allow the company to design and develop
Timor sedans on its own.

He said this would also allow Timor Putra to operate as a
principal car manufacturer, instead of an authorized dealer like
all car assemblers in Indonesia.

He said Timor Putra had already paid for the importation of
39,000 units of Timor sedans, instead of the 45,000 the
government had initially approved earlier this year.

Hutomo said he was confident that any decision reached by the
World Trade Organization's (WTO) dispute settlement panel would
have no impact on Timor's production.

"By the time the WTO comes to a ruling (on the national car
policy) -- which will be sometime in early 1999 -- Timor would
have already had a local content of 60 percent, or even 64
percent," he said.

"This (local content amount) is in line with the 1993
government regulation on automotive (which allows lower import
duty and luxury taxes with every increase in local content), so
Timor will not be violating the regulation," he said.

Under the 1993 government regulation, the components of
passenger cars with a local content of less than 20 percent are
subject to an import duty of 65 percent. Cars with a local
content of more than 60 percent will be exempted from import
duty.

But the national car policy issued last year allows for the
exemptions to take place before the local content requirement --
and the car itself -- materializes.

The policy was criticized by the European Union, Japan and the
United States, all of whom have requested the creation of a WTO
dispute settlement panel to deal with the issue. (pwn)