Asia Pulp & Paper to Default on $12 Billion in Debt
Copyright 2001 Bloomberg
March 12, 2001
By Kate Linebaugh
Singapore, March 12 (Bloomberg) -- Asia Pulp & Paper Co. said it will default on $12 billion in debt after plunging pulp and paper prices left the company short of cash to pay for years of aggressive expansion.
A company proposal to change terms on $2 billion of loans, as well as an Indonesian unit's delay in paying interest last month, has prevented Asia's largest paper and pulp company outside Japan from raising more money in capital markets.
``The sharp drop in pulp and paper prices, reduction of available lines of credit for working capital, combined with rising costs for Indonesian corporates have significantly impacted our business and our cash position,'' Chief Financial Officer Hendrik Tee said in a faxed press release.
Asia Pulp has tapped $6.5 billion from global markets in the four years to 1999, including $2.7 billion to expand business in China. Increased capital expenditures in the second quarter last year and an announced plan to raise $1 billion to finance a Malaysian pulp mill caused many investors to dump the company's bonds last year. The plan for the mill was later shelved.
The company's notes due 2005 with an 11.75 percent coupon -- the company's bonds with the longest maturity -- fell 6 points to 23.5 cents on the dollar. The company's U.S.-traded shares fell 22 percent to 18 cents before the New York Stock Exchange halted trading in the stock. The shares have lost 97 percent of their value during the past year.
Last week, Asia Pulp hired Credit Suisse First Boston to help revamp the debt and J.P. Morgan Chase & Co. to advise on possible asset sales.
Creditors Meeting
Bondholders, banks and export credit agencies for the Singapore-based company had been scheduled to meet today in New York before Asia Pulp announced it would stop paying its debts.
The major question now is how much the company is going to ask bondholders to write off, said Denis Parisien, an emerging market bond strategist at Miller Tabak Roberts Securities LLC, a high yield and emerging market bond trading firm.
``The process will be long, very difficult and complicated,'' Parisien said.
Since the company proposed changing terms on $2 billion of debt in September to better match liabilities with revenue, creditors have been concerned about repayment. The proposal was never approved by U.S. regulators.
The company and its units have $1.5 billion of debt coming due this year. Asia Pulp has a payment of more than $25 million due April 1 on its $450 million 2005 bond, according to Bloomberg Data.
Suits
Five creditors, including Credit Lyonnais SA, are suing the company in Singapore. Today, Credit Lyonnais had a preliminary hearing in a suit for repayment of $2.2 million in debt.
Union des Banques Arabes et Francaises is seeking repayment of $2 million for trade financing, according to court documents. ABN Amro Holding NV filed a suit last week to recover $31 million court documents from three of Asia Pulp's units, and Bank of East Asia Ltd. and Avebe (Far East) Pte. have also filed claims, court documents said.
Asia Pulp's Indonesian unit, PT Pabrik Kertas Tjiwi Kimia, last month missed a interest payment. The unit paid $43 million in interest late, nearly causing the company to be declared in default by bondholders. Asia Pulp also deferred an $11 million dividend payment on $375 million in preference shares.
Prices of hardwood pulp in Asia fell to $380 a ton in February, from a peak of around $680 a ton in the second quarter last year, producers said.
To ensure that is operations keep running the company said it will give ``priority to servicing our suppliers and trade creditors.''
The company's move to stop servicing its debt will likely cause Standard & Poor's to slash its ``CCC-'' rating to default.
The rating company said Friday it would ``regard as a default any debt restructuring that involves interruptions to scheduled payments of financial obligations, be they principal or interest.''