LANGGENG MAKMUR INDUSTRI RESTRUCTURING DEBTS.
LMI had sought additional fund for working capital and investment. The fund was secured from banks and financial institutions both local or international creditors in short or long term loans with the company assets as collateral.
Since mid 1997, Indonesia has been undermined by economic crisis marked with rupiah depreciation. Major impact of the crisis are low liquidity, high interest rate and instability of the exchange rate, falling stocks, tight monetary system, price hikes both for commodities and services.
As a result LMI failed to repay its debts when it was due for repayment.
A stock market regulation says that an issuer or a public company could increase capital without rights to order to shareholders if the additional capital is needed to improve the position of the company facing problem in fulfilling its debt obligation.
PT LMI's creditors have agreed to restructure or reschedule its debts. Debt restructuring agreement with some of the creditors was made in 1999.
But the debt restructuring agreement had not brought about significant improvement for the company as the largest part of the debt had not yet restructured. PT LMI, therefore, since late 1999, has sought more restructuring agreement with 12 other creditors.
The creditors have appointed the Indonesian Bank Restructuring Agency (IBRA), The Sanwa Bank Ltd, Singapore and The Hongkong & Shanghai Banking Corp. Ltd and Sutabaya (HSBC) as the guide committee.
The folowing table shows the outstanding debt based on the company's financial report on August, 31, 2000 (not yet audited) before the process of restructuring with the 12 creditors were completed.
Table - 1 Outstanding debt of Langgeng Makmur, August, 2000
Creditor Credit Year of facility disbursement IBRA Invest. and 1992 - working capital 1998 Sidicated loan Investment 1996 with The Sanwa Bank Ltd Singapore as the arrager PT Bank Sumitomo Niaga working capital 1995 PT Bank Sanwa Indonesia working capital 1996 Promissory notes with PT working capital 1996 Andalan Artha Advisindo as arranger Total Total Creditor Maturity (Rp million) (000' date US$) IBRA Feb'1999 309,197.1 -- Oct'2004 Sidicated loan Oct'1998 -- 10,869.0 with The Sanwa Bank Ltd Singapore as the arrager PT Bank Sumitomo Niaga Apr'1998 15,118.7 -- PT Bank Sanwa Indonesia Feb'2000 10,002.3 -- Promissory notes with PT Sep'1999 1,479.5 Andalan Artha Advisindo as arranger Total 334,318.1 12,714.4
Source: Data Consult
Recalculation of Interest
On Nov, 10, 2000, agreement on debt restructuring was signed by creditors, The creditors include IBRA, The Sanwa Bank Ltd Singapore Branch, Asean Finance Corp, Lis, Royal Bank of Scotland Pie, Singapore Branch, PT Bank BNP Lippo Indonesia, Bank of China, Singaporer Branch, BNT Paribas Singapore Branch, Agnitio Finance Ltd, The Hongkong & Shanghai Banking Corp Ltd, Surabaya branch, PT Bank Sumitomo Niaga, PT Bank Sanwa Indonesia and lndover Bank,
The agreement will be effective after the company meets a number of requirements such as approval from its shareholders for the restructuring program,
The company will gain from the restructuring program as follows:
- Renewal of terms including debt rescheduling with reasonable interest
- Compensation of part of the debt with zero coupon convertible bonds and the interest is included in the bond,
- Sales of non productive assets without causing negative impact, The fund from the sales of the assets will be used to repay convertible bonds that reducing effects of dilution on the share ownership.
- Ratio of debt to capital will improve if the bonds are converted into shares,
Seeing the condition of the company, a package of debt restructuring was agreed upon between the company and creditors based on its outstanding debt on Nov. 8, 2000 with the following conditions.
a. Recalculation of interest on restructured debts
The interest rate on remaining debt of the company on Janury 1, 1998 until debt restructuring agreement was effective was recalculated with a maximum rate (cap rate) of 22% a year on rupiah debts and 6.5% on U.S. dollar debts. After the recalculation, the remaining debt on Nov. 8, 2000 totaled Rp 304,310.1 million and US$ 12.663.600
The amount of debts in rupiah included Rp 150,825.1 million to be repaid by installments and Rop 153,485 million in convertible bonds. The debt in U.S. dollar included US$ 6,386,900 to be repaid by installments and US$ 6,276,700 in convertible bonds.
b. Debt to be repaid by installments
After the recalculation, an equivalent of Rp 210 billion will be paid by installment every quarter in six years. Dollar debt is calculated based on the Bank Indonesia middle rate 7 days before the agreement was signed namely on Nov. 1, 2000 at 9,265 per dollar. The debt to be repaid by installment amounted to Rp 150,825.1 million and US$ 6,386,900. The debt carried an interest (paid every month) amounting to SIB margin for debt in rupiah and SIBOR + margin for debt in U.S. dollar.
The margin in the first to third years was 3% for rupiah, 2% for onshore USS, 1.5% for offshore USS a year. In the fourth year to 6th year, the margin was 4% for rupiah, 3% for onshore USS and 2.5% for offshore USS.
c. Convertible bonds
The total debts after being deducted with the installment will be paid with zero coupon convertible bonds in four serial numbers.
One is 9 months amounting to Rp 30,697 million and USS 1,255,300; second is for 2 years amounting to Rp 30,697 million and USS 1,255,300, third is for 4 years amounting to Rp 30,697 million and USS 1,255,3000 and thr fourth was for 6 years amounting to Rp 61,394 million and US$ 2,519,700.
The convertible bonds carry an interest rate of 8.5% annually for rupiah and 4.5% for dollar and they could be converted into share when they are due for repayment with a conversion price of 80% of the market price.
d. Sales of non productive assets
The sales of non productive assets are estimated at Rp 92 billion to be used to repay its debts in convertible bond and other debts paid by installments.
e. Prepayment of convertible bonds and debts paid by installments
The company has the right to pay the bonds earlier than the maturity date on condition that the repayment fund comes from external sources such as the sales of non productive assets and refinancing.
The fund could be from internal sources when the company has a surplus in cash. Based on a review by an auditor, 80% of the surplus could be used to pay debt in convertible bonds.
Table - 2 Composition of share capital of LMI before and after conversion
Before conversion Capital structure Number Nominal of share value (000' pcs) (Rp million) Authorized capital 750,000 375,000 Issued capital and fully paid: - Share issued 215,232 107,616 - Share from additional capital without fight to order -- -- Total capital issued and fully paid 215,232 107,616 - PT Langgeng Purnabahagia 149,568 74,784 - Public 65,664 32,832 - Creditor -- -- Share in portfolio 1 534,768 267,384 After conversation Capital structure Number Nominal of share value (000' pcs) (Rp million) Authorized capital 750,000 375,000.0 Issued capital and fully paid: - Share issued 215,232 107,616.0 - Share from additional capital without fight to order 207,542.5 103,771.3 Total capital issued and fully paid 422,774.5 211,387.3 - PT Langgeng Purnabahagia 149,568.0 74,784.0 - Public 65,664.0 32,832.0 - Creditor 207,542.5 103,771.3 Share in portfolio 1 327,225.5 163,612.7
Source: Data Consult
Financial performance improves
With the debt restructuring the financial performance of the company has improved. Following were financial data (unaudited) of the company in the first 8 months of this year.
- The interest in the outstanding debt starting January, 1998 until August 31, 2000 was 22% on rupiah debt and 6.75% on dollar debts a year.
- Bank debt on August 311, 2000 amounted to Rp 210 billion rescheduled into long term debts to be paid by installments. With an exchange rate of 8,290 per dolar by August 31, 2000, the debt to repaid by installment amounts to Rp 159,662.3 million and USS 6.109,400
- Sales of non productive assets are estimated at Rp 92 billion to be used to repay part of its debts.