When Claim Is Threatened Under Default

APP has transferred its escrow account’s deposit, creditors are distraught.

The management of Asia Pulp and Paper silently has transferred its escrow account’s deposit from the previous accounts agreed among all of the creditors to another accounts kept in four different banks. APP’s creditors are getting worried that their receivables shall not be repaid.

In various other matters concerning competition with other countries, Indonesia is defeated many times. However, this is not the case when dealing with creditors. For example Asia Pulp and Paper (APP) Co. Ltd. which is being a croupier to business group owned by Eka Tjipta Widjaja family is succeeding to escape from its creditors’ drives, whereas most of these creditors are foreign creditors from various countries among others are Japan, United States of America, Canada, Italy, Austria, Germany, France, Spain, Sweden, and Finland.

As known, APP having its headquarter in Singapore and has listed its share in the New York Stock Exchange (NYSC) has an enormous amount of debt, of US$ 13 billion. Part of such debt, is APP Indonesia’s-APP Co. Ltd. subsidiaries’ debt in the amount of US$ 6,2 billion, has been restructured. The rest are still in the form of notes which spread all over the world. It turned out that these debts which have been restructured in 2002 until this moment is troubled.

The Creditors aware of the account transfer

As usual, APP’s creditors are starting to worry that their receivables are not getting paid, due to APP has breached several agreement signed by them. One of the itches getting their nerve is that APP’s reluctance to deposit their income to the escrow account kept in Bank Mandiri. “APP’s management is no longer depositing repayment fund to the escrow account,” said KONTAN’s sources representing the creditors. Yet, Andrew Saker, negotiator from Ferrier Hodson-representing creditors united within the Export Credit Agency (ECA) is not willing to comment on this matter. “All of this is still in the stage of finalizing the restructuring documents,” he said.

Sinar Mas has objected to the creditors’ accusation that they no longer deposit their business income. According to Sinar Mas’ spoke person’s confession, Yan Partawidjaja, APP is still performing its obligation of depositing business income generated from its Indonesian subsidiaries. Such deposits are not pooled in one account, instead it is divided into several accounts kept in several banks. “Now monies deposited in the escrow account are divided into and kept in BNI, BRI, BII, Mandiri Syariah, and Bank Mega,” said Yan.

Yan Partawidjaja even has clarified that APP’s creditors are aware of this account’s transfer into several banks. Even at this moment there are fund in the amount of US$ 410 million kept in the escrow account. Other than these collected funds, there are also payable funds to the advisors and lawyers in the amount of US$ 110 million. There are also funds which are already paid to BPPN in the amount of US$ 90 million. “Therefore total funds kept in the escrow account all this time is in the amount of US$ 610 million,” added by Yan. Therefore, the creditors’ accusations stating that APP is not depositing its money in the escrow account do not make sense.

However, Yan confirmed that at this moment APP and its creditors are making new restructuring scheme. On July 2004, APP’s management has submitted its new restructuring proposal as set forth in the Master Restructuring Agreement (MRA). “Currently the restructuring is undergoing and regarding the exchange offer (the old credit system is exchange with new credit system) documents is getting close to finalization,” said Yan optimistic.

Creditors afraid of being treated like stepchildren

Only for freshened up our memories. Pursuant to the 2002 agreement, the creditors and APP have agreed that APP Indonesia (PT Tjiwi Kimia, PT Indah Kiat Pulp and Paper, PT Pindo Deli and PT Lontar Papyrus) are still capable of generating income in the amount of US$ 750 million annually. Therefore to the US$ 6,2 billion debt, they made repayment scheme divided into three tranches and known as tranche A, tranche B, and tranche C.

Tranche A, debt in the amount of US$ 1,2 million shall be repaid within 10 years period, starting from beginning of 2003 until the end of 2012. This debt is sustainable debt (debt which shall be paid from the company’s operational) having interest rate equal to SIBOR + 1%-3%.

Tranche B, a debt in the amount of US$ 3 billion which is going to be collected after 10 years period. During the time when the principal is not repaid, the tranche B shall bear the same interest rate to those of tranche A.

Tranche C, is unsustainable debt or certain debt which according to on-paper calculation shall never be repaid by APP. This category of debt is in the amount of US$ 2 billion. These debts shall be repaid if there is excess of monies after repaying the debt categorized in tranche A and tranche B.

The restructuring which is getting closer to finalization relates to the exchange offer pattern or the issuance of new notes replacing the old ones. However the creditors are not very interested in this APP’s suggestion. Whereas in fact in order for this restructuring scheme able to be implemented, 75 % of creditors must agree.

The creditors’ reluctance itself is caused by their worries that they will get new notes categorized into tranche B and tranche C. whereas in fact according to Sinar Mas, such worries is caused by the creditors not understanding the new scheme they proposed. We have to understand that it is very hard to explain to all of the creditors consisting of investors and who are tired of discussing APP’s restructuring. In addition, if the debt categorized into tranche B and tranche C means that they shall be treated like a stepchild relating to repayment.

Meanwhile, the creditors holding the APP’s notes but not joining the restructuring scheme of debt amounted of US$ 6,2 billion look understand with APP’s tricks. “We’ve said it from the beginning when such notes’ claim in USA is defaulted. They did not pay, then they offer restructuring scheme which is not giving any benefit to us,” said Rahmat Bastian, a lawyer representing BT Partnership Law Firm, a law firm appointed as representative of two American creditors, Oaktree Capital Management and Gramercy Advisors. Oaktree Capital Management and Gramercy Advisors each is holding APP notes in the amount of US$ 400 million.