TEMPO No. 01/VII/Sept 05 - 11, 2006 Economy & Business Two Garudas, One Squeeze
The loans of Raja Garuda Mas and Garuda Indonesia from Bank Mandiri are categorized as problem loans. -------------------------------------------------------------------------------- ONCE in a while, there was a smile on the face of Agus Martowardojo, CEO of Bank Mandiri. At the moment, Agus is in a reasonably good mood because the problem loans of the 30 largest debtors at Bank Mandiri have been reduced during the last year. Several of these, which comprise some of Indonesia's top companies, have started to make repayment installments on debts that were previously classified as problem loans. These major debtors include Budi Acid Jaya, Sulfindo and Apac Inti Corpora. These repayments have reduced the problem loans to Rp14.84 trillion, as of June this year. While one year ago, the total of their problem loans still stood at Rp18.46 trillion. The proportion of these problem loans against non-performing loans (NPLs) has also dropped from 75 percent to 56 percent. And by the end of this year, according to Agus, there will be more debt repayment installments amounting to around Rp4 trillion. However, not everything is this encouraging. In addition to debtors that are cooperative, there are also several that are stubborn. Agus made a special point of mentioning the name Raja Garuda Mas. According to Agus, Bank Mandiri has already been negotiating the debts of this integrated paper company belonging to Sukanto Tanoto for a period of two years. "There is still no improvement in terms of attitude," said Agus, this time with an extremely serious look on his face. Raja Garuda Mas obtained this loan from a syndication of national banks in order to finance its Riau Complex integrated paper manufacturing plant. The syndicated loan totaled US$1.5 billion, or Rp13.5 trillion, and the banks involved were Bank Mandiri, BNI, Bank Panin, Bank Niaga and Bank Danamon. Of this total, Bank Mandiri's contribution amounted Rp5.4 trillion. This became a problem loan in 2000 and was eventually restructured. Every year, Raja Garuda Mas's repayments amount to US$61 million. What has created a lot of pressure for Agus is that there appear to have been no good intentions from Sukanto in terms of improving the company's debt repayment installments. This is in spite of Raja Garuda's revenues jumping dramatically since pulp prices rose from US$350 per ton in 2002 to more than US$600 per ton. Since 2004, the revenues earned by this business group have jumped to almost US$1 billion per year. However, Raja Garuda still makes annual debt repayments of just US$61 million. This still has to be shared with other syndication members. Based on Bank Indonesia regulations, these repayments-with an interest rate of only 0.5 percent per year, far below market rates-mean that the loan has been categorized as a problem loan. As a result, the NPL ratios of both Bank Mandiri and BNI have shot up. The proportions of the Riau Complex problem loan at Bank Mandiri and BNI are certainly high, amounting to 16 percent and 15 percent respectively of the total NPLs at the two government banks. Raja Garuda has violated several parts of its agreement. These violations, according to Agus, include proceeds of export-import transactions not being deposited at Bank Mandiri and cash excesses not being utilized to pay its obligations. In addition to this, if pulp prices rise, then repayment installments should rise too. However, this has not happened. Raja Garuda has also made several investments without permission from the creditors. "The transactions were even made through a subsidiary company in Singapore." For the last two years, Bank Mandiri has been requesting that Raja Garuda increase its debt repayments to US$120 million per year. "We have already asked for meetings but the owner (Sukanto) doesn't want to come," said Agus. "If this is really the case, are there really any good intentions? In comparison, look at the example of Argo Pantes. Even though the textile sector is experiencing difficulties, this company wants to sell off high-value properties in order to repay its debt." Agus warned that his patience as a banker has limits. In addition, times have changed. According to him, there has been a great deal of pressure brought to bear by several different parties, such as the general public and the Capital Market Supervisory Agency, plus Customs & Excise as well as the taxation authorities. "Bear in mind that in its capacity as the shareholder of Bank Mandiri, the government is very angry about this. We will take strict measures," he said. Unlike Bank Mandiri, Raja Garuda still feels that it is already being cooperative. In fact, according to Troy Pantouw, spokesperson for PT Riau Andalan Pulp & Paper, a subsidiary company of Raja Garuda, negotiations are still continuing. "We still have good intentions. The installments will certainly be increased however as yet there has been no decision," said Troy last week. Troy is also of the opinion that these negotiations do not require the presence of Sukanto Tanoto as the owner because it is sufficient for business-to-business negotiations to be handled by the management of Raja Garuda with the creditor. "I feel that any opinion insisting that Sukanto attend the negotiations would not be advisable." Although matters with Raja Garuda have not yet been settled, the management of Bank Mandiri faces a new threat: another debt that is worth Rp1 trillion and is in the form of mandatory convertible bonds (MCBs) that can be exchanged for shares and which are guaranteed by the government. These belong to state airline company Garuda Indonesia and they fall due on September 7. Because it has losses amounting to hundreds of billions of rupiah, Garuda is unable to pay and has requested that the bonds be converted to shares. This has infuriated the management of Bank Mandiri. Why? Because if this were to take place, then the bonds would be categorized as problem loans, meaning that Bank Mandiri, once again, would have to set aside reserves amounting to Rp1 trillion. This would wipe out the bank's profit, which stood at only Rp815 billion in June of this year. And that is not all. This state bank would no longer enjoy the interest of 4 percent per year. "We don't want the bonds to be converted into shares because eventually this will mean losses for Bank Mandiri," said Agus. The letter of rejection was already sent some weeks ago. The conversion of the bonds is considered to be different to a debt write-off. Agus has acknowledged that in the debt restructuring agreement of 2001 it does in fact state that after Garuda has gone public (the original target was 2003), then the bonds can be converted into shares that can later be sold off. But the decision to convert the bonds is not for Garuda to make, rather it rests in the hands of the bank. "What is required now is the government's assurance that it will still guarantee the bonds and Garuda will continue to seek a strategic investor." Garuda itself remains convinced that Bank Mandiri will be prepared to convert the debt into shares. The conviction of the management of Garuda has been strengthened by signals from senior officials at the State Ministry for State-Owned Enterprises (SOEs) who have stated that the debts of SOEs at state banks will be written off following the issuing of a government regulation that will separate state assets and SOE assets. If this were to happen, Garuda will be safe and Bank Mandiri will become the victim. "This would cause losses to investors and shareholders in Bank Mandiri," said Agus. Alex Maneklaran, Finance Director of Garuda, has denied requesting Bank Mandiri write off the debt. According to him, the conversion to shares is covered in the agreement signed in September 2001. "Following discussions with the government, we will submit an official proposal for the restructuring of the debt to the creditors at the beginning of this September," Alex told Tempo last week. If this goes as planned, then Garuda will be able to make use of this in order to negotiate debts with other creditors. In addition to Bank Mandiri, Garuda also has a debt to the European Export Credit Agency (ECA) amounting to US$500 million (Rp4.5 trillion). This was used for the purchase of six Airbus 330 planes. The green light to reopen negotiations could already be seen during a meeting this June with ECA in London. This was different to the situation earlier because before ECA refused to reopen negotiations with Garuda. ECA always asked for a government guarantee as regards any debt restructuring. However, because Indonesian law states that the government is not allowed to guarantee corporate debt, ECA wants to discuss ways of settling the debt. "We still wish to share the burden of the debt," said Alex. In order to improve the company's bargaining position in facing ECA, there have been reports that the Garuda Corruption Committee is currently carrying out an investigation into the possible marking up of the purchase price of the six Airbus planes. However, Alex denied that any findings would be used as weapons for negotiation. "The findings are not available yet. We just want to focus on the strategy of sharing the burden." Heri Susanto and Bagja Hidayat -------------------------------------------------------------------------------- Bank Mandiri's Major Debtors Kiani Kertas Owner: Prabowo Subianto Value of Debt: Rp2 trillion Catagory: Uncooperative Great River Owner: Sunjoto Tanudjaja Value of Debt: Rp300 billion Catagory: Uncooperative Raja Garuda Mas Owner: Sukanto Tanoto Value of Debt: Rp5.4 trillion Catagory: Not yet cooperative Garuda Indonesia Owner: State-Owned Enterprise Value of Debt: Rp1.3 trillion Catagory: Not yet cooperative Djajanti Group Owner: Burhan Uray Value of Debt: Rp869 billion Catagory: Not yet cooperative Suba Indah Owner: Benny Tjokrosaputro Value of Debt: Rp1 trillion Catagory: Not yet cooperative Domba Mas Owner: Susanto Liem Value of Debt: Rp1.9 trillion Catagory: Starting to be cooperative Argo Pantes Owner: The Nin King Value of Debt: Rp2 trillion Catagory: Cooperative A Latief Group Owner: Abdul Latief Value of Debt: Rp720 billion Batavindo Owner: Habil Marati Value of Debt: Rp 540 billion Source: Bank Man [Non-text portions of this message have been removed] ------------------------ Yahoo! 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