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Texmaco, IBRA and the battle over
debt
By Bill Guerin
JAKARTA -
Textile and engineering giant Texmaco announced last
week that it had defaulted on a US$25 million letter of
credit facility from Bank BNI 46. The move prompted the
Indonesian Bank Restructuring Agency (IBRA) quickly to
announce plans to take tighter financial control of the
group's diverse enterprises, raising speculation that
Indonesia's largest-ever corporate-debt restructuring
deal could collapse.
Texmaco employs 150,000
people and has five factories across Java in its core
businesses of textiles, synthetic fibers, garments,
textile machinery and machine tools. Some legislators
have even called the group a national asset, and its
flagship, Polysindo Eka Perkasa, is the world's leading
polyester producer and the 12th-largest company in
Indonesia.
Marimutu Sinivasan, the 65-year-old
founder of the Texmaco Group, though born in 1937 in
Medan, North Sumatra, is of Tamil-Indian descent, and,
like so many of Indonesia's conglomerate builders, began
business as a trader, selling batik from
Indonesia and importing cotton from southern India. By
the early 1980s his textile business had grown into a
manufacturer of small-scale machinery used in the
industry and Texmaco was poised to benefit from the low
labor costs, subsidized energy and low customs tariffs
of the era.
By the mid-1990s Texmaco was selling
textiles to 55 countries and Polysindo, among the
world's largest producers of polyester, saw revenues
almost triple from Rp581.6 billion to Rp1.4 trillion in
the four years to 1996.
Sinivasan may now risk
losing control over his corporate empire, still buried
under more than $3.8 billion in debt, but the man once
described as a "symbol of impunity" because of his
political clout with former presidents Suharto, B J
Habibie and Abdurrahman Wahid still has more cards to
play.
IBRA said it still wants to maintain
Texmaco's current production process so as not to
jeopardize the $2.7 billion debt workout it signed with
the conglomerate in May 2001. Under that agreement,
Texmaco pledged to hand over all its assets to a new
holding company controlled by IBRA until the entire debt
was repaid over 12 years. But the government allowed
Sinivasan to continue to run the company, unlike other
agreements with debt-strapped conglomerates.
IBRA chairman Syafruddin Temenggung admitted
that although the recent letter of credit had been taken
out by Polysindo, the funds had been diverted into the
loss-making heavy-engineering and auto-making division,
Texmaco Perkasa Engineering BV. This division was
supposed to be the catalyst for a high-technology drive
whereby Texmaco would become a regional force in the
production of heavy trucks and sophisticated machinery.
Financing expansion in the late 1990s ran up
debts of Rp942 billion to government banks. These and
the other bad loans were later transferred to IBRA.
Texmaco has three other divisions - textiles,
polyester, and steelmaking - which resulted from a
reorganization following the IBRA deal.
Texmaco's ability to service its massive debt in
the light of the default is plainly in question, but
insiders at IBRA point out that the agency was always
aware that Texmaco needed working capital to carry on
with its operations.
"Due to higher raw-material
costs, they [Texmaco] are finding it difficult to
increase production," one source said. "But they are
confident that if they can secure support from LCs
[letters of credit], they can repay their debt." This
implies that IBRA will bail the company out in one form
or another.
Mirza Adityaswara, head of Research
at Bahana Securities, expressed surprise at the default
on such a relatively small amount and said: "Texmaco has
been facing problems for some time, but this is the
first time that BNI is barking."
This week, as
if to prove the engineering group was not in the dire
straits described by analysts, the group announced a
completed export sale of 100 Perkasa buses to Saudi
Arabia. The presence of Manpower Minister Jacob Nuwa Wea
and Golkar Party leader Theo L Sambuaga at the
handing-over ceremony in Subang speaks volumes. Not only
is Sambuaga a commissioner of one of Texmaco's holding
companies, he was manpower minister in Suharto's last
cabinet.
Market analysts see the significance of
this as being a precursor to Sinivasan playing the
nationalist card again. Abdurrahman Wahid, president at
the time of the restructuring deal, frequently defended
Sinivasan and other indebted tycoons as exporters with
valuable national assets that must be kept running for
the benefit of the country.
Megawati
Sukarnoputri's election to the presidency in July 2001
should have heralded doom for Sinivasan inasmuch as one
of her closest advisors, Laksamana Sukardi, as state
minister for state enterprises and IBRA chief, was
widely expected to go after Sinivasan. On November 29,
1999, Sukardi, then Wahid's minister of state
enterprises and investment, testified to the Indonesian
parliament (DPR) that former president Suharto and
Texmaco had engaged in "high-level collusion and
conspiracy" to have a state bank extend credit to the
conglomerate. Sukardi was referring to Texmaco's receipt
of $276 million from Bank Negara Indonesia (BNI) under a
government-approved export-assistance program aimed at
increasing Indonesia's non-oil-and-gas export earnings.
Bank Indonesia, the central bank, dished out
pre-shipment facilities - credit for purchasing
materials and to arrange financing for exports - instead
of the standard post-shipment bridging loans.
In
December 1997, a month after receiving the BNI credit,
Texmaco, threatened with default on some of its foreign
debt, asked for another $100 million to be deposited in
BNI's Cayman Islands branch. Finally on December 29,
Sinivasan asked Suharto for a 100 percent pre-shipment
facility, saying the central-bank limit of 50 percent
would cost the country jobs, and Suharto released a note
of approval.
Sukardi tried his best and
Sinivasan was even named as a suspect in the case, but
pressure from politicians saw the case gradually
disappear from the headlines.
An earlier order
for 1,000 trucks by the Indonesian military had
motivated Texmaco to finish off its main steelmaking and
automobile plant in Subang, West Java, which it began
building just before the 1997 Asian financial crisis
battered the economy. The military had been offered
trucks from South Korea but chose Texmaco's.
Under the deal signed with IBRA in May 2001,
Texmaco pledged to hand over all its assets to a new
holding company controlled by IBRA until the entire debt
was repaid over 12 years. Significantly, unlike other
agreements with debt-strapped conglomerates, the
government allowed Sinivasan to continue to run the
company.
The deal was slammed not only for
leaving Sinivasan in control but also for allowing
Texmaco too much time to pay back its debts. There was
also criticism of the secrecy surrounding IBRA dealings
with Texmaco. There were widespread allegations of
collusion with government officials, and it was soon
made public that IBRA watchdogs were only represented at
the holding company level and held no sway within the
conglomerate's units.
The IBRA deal with Texmaco
remains outside of guidelines on debt restructuring
drawn up in consultation with the World Bank and
International Monetary Fund. The guidelines specifically
forbid original shareholders in indebted companies under
IBRA from playing a management role in the restructured
company unless they are "cooperative and have sound
integrity".
IBRA defends the non-adherence by
saying the guidelines had not been followed by a decree.
IBRA has the leeway to liquidate Texmaco if it
fails to keep up payments, but the group's greatly
deteriorated asset base means that a selloff would not
realize anywhere near enough to repay the debt. This is
a dilemma that has faced IBRA for years - sell assets at
a loss, or risk waiting for their value to rise.
Officials at IBRA have insisted for two years
that Texmaco's debt accord isn't a bailout and that the
memorandum of understanding signed with Texmaco gives
them the power to liquidate unprofitable units.
Texmaco owes an additional $1.7 billion from
debts in its operational units owed to mainly foreign
bondholders that has yet to be restructured. About $700
million of that debt is secured against Texmaco's
profitable polyester assets.
IBRA, for the
government, is between a rock and a hard place. The
dilemma of whether to pump more money into Texmaco in
the hope of recovering most of its debts or opt for
liquidation and face a big writedown is unlikely to be
met by the latter choice.
This time around IBRA
promises it will review transactions before they are
made rather than the reverse, and Temenggung said IBRA
would request that Sinivasan provide his own funds to
support the working capital of the engineering unit.
There were also assurances that IBRA would
separate the textile and engineering units and assume
greater control over both, while Temenggung estimated
that IBRA would place around seven financial controllers
within Texmaco.
However, after a meeting of
IBRA, BNI, Texmaco and the powerful Finance Sector
Policy Committee (KKSK), the IBRA chief was forced to
admit that his agency would pay the outstanding $29
million to BNI if Sinivasan was unable to pay
immediately, though quickly adding that Sinivasan would
have to provide collateral to an equal value.
IBRA's largest single debtor is a near certainty
to outlive its major creditor. The agency is being
terminated next year.
(©2003 Asia Times Online
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