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Tuesday, 13 March, 2001, 12:40 GMT
Asian paper giant defaults on debt
Paper mill
The company partly blames price drops for its default
Asia Pulp & Paper (APP), one of the world's largest paper producers, has announced that it will stop repaying its debt, including interest payments.

The moratorium applies to the parent company, which is in debt to the tune of nearly $11bn, and its subsidiaries.

APP has announced that the "standstill" on debt repayment will allow its units to "continue normal operations" and will give priority to its suppliers and trade creditors.

Hendrik Tee, APP's chief financial officer, said the company decided to cease repayment on the advice of its bankers, Credit Suisse First Boston.

Problems in the region

"The sharp drop in pulp and paper prices... combined with the rising cost of borrowing for Indonesian corporates, have significantly impacted our business and our cash position," Mr Tee added.

Students protest in Indonesia
Political unrest in Indonesia could add to APP's problems
The company hopes that prices will recover in the next quarter.

The news has increased fears that the region's economic problems are set to get worse.

The international petroleum company Exxon Mobil recently closed down oil and gas fields in Indonesia because of security concerns.

With many of its plants in Indonesia, APP is also vulnerable to political and ethnic unrest in the country.

Creditors

APP now hopes to reach an agreement with its creditors, and plans to discuss the "way forward" with them.

APP has always been a heavy borrower, paying high interest rates to compensate lenders for the risk.

Bank lenders are usually the last to be repaid if a company goes belly-up.

Credit Lyonnais has already filed a writ against the company over doubts that the company would repay its debts.

In February, APP had made one late payment to pay back debt and missed another.

It is estimated that the company has between $1.5bn and $2bn of debt to pay back this year.

The 10th largest

Headquartered in Singapore, APP is the 10th largest paper company in the world. It produces 5.7 million tonnes of paper and packaging a year.

The company, which is listed on the New York Stock Exchange, has 17 manufacturing facilities in Indonesia, China and India.

It may be difficult for creditors to seize assets because the company has so many operations in different countries.

American depositary receipts for APP could be delisted by the NYSE because they have traded below $1 for more than 30 days.

Two US ratings agencies - Standard & Poor's and Fitch IBCA - have both downgraded the company's credit worthiness.

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See also:

12 Mar 01 | Business
Exxon Mobil closes Indonesian fields
21 Feb 01 | Business
Asian giant at crisis point
09 Feb 01 | Business
Asia's business news
12 Mar 01 | Asia-Pacific
Growth fails to ease Japan's woes
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