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)