Paper giant seals debt deal

Indonesia's huge logging industry feeds APP

A huge debt deal reached after 18 months of negotiation looks set to save Asia's biggest paper producer outside Japan.

This is the first step, the first time there has been an agreement between key creditors and the company

Syafruddin Tumenggung
IBRA chief

The agreement paves the way for Indonesia's Asia Pulp and Paper (APP) - the world's biggest single emerging market debtor - to restructure almost half the $13.9bn (£9bn) it owes.

The deal came just hours before a deadline set by its biggest creditor, the powerful Indonesian Bank Restructuring Agency, which said it hoped to have the legal paperwork done by the end of the year and the actual restructuring under way in 2003.

"This is the first step, the first time there has been an agreement between key creditors and the company," the agency's head, Syafruddin Tumenggung, told reporters.

The debt is split into three blocks. The first, $1.2bn, will be paid back in full with interest over 10 years.

The second, of about $3bn, will only receive interest for 10 years, after which a refinancing can be arranged.

Another $2bn-$2.5bn is seen as unsustainable, and will be swapped for convertible bonds.

Up to the ears

APP ran into trouble as the world economy slowed in early 2001, after rapid expansion in the 1990s left it facing a cash crunch and forced it to call a moratorium on paying its debts.

Many other Indonesian companies are also in trouble thanks to fallout from the collapse of the country's currency, the rupiah, amid the Asian economic meltdown of 1996-97.

But APP's troubles dwarf even those of the Indonesia banks - not only because of the scale of its debts, but because of the sheer number of its creditors.

Arguments between them have held up previous efforts to reach an agreement.

Deadline

As a result, the parties to Monday's deal - largely institutions - account for only $6.2bn-$6.9bn.

The group's extensive operations in China are working on their own deal, and APP's holding company in Singapore is separate too.

But other creditors are now expected to start falling in line, thanks to a 31 March deadline to join the deal.

"If other creditors don't want to join, they will not get paid," said APP executive Gandhi Sulistyanto said last week.