Indonesia Refinery Restart Shows Long Road From 1998 Asia Crisis

  • Petrochemical plant progress stalled during 1998 Asian crisis
  • Company switched debt into stocks, bonds in 2014 restructuring

Just as rating companies see rising risks for defaults in Asia, one Indonesian refiner may finally be emerging from the shadow of 1998’s currency collapse.

PT Trans-Pacific Petrochemical Indotama, a project that stalled during the Asian crisis, resumed operations last quarter and is now running at about 70 percent of its capacity to produce gasoline, said President Director K. Denni Wisnuwardani. The earnings are being used to pay operating expenses but not creditors, as a 2014 restructuring of $1.88 billion in debt allows for repayment when new bonds mature, said Chief Financial Officer Basya Himawan.

“It’s not optimum yet because we are not running at full operation but our business is not distressed anymore,” Himawan said in a joint interview in Jakarta with Wisnuwardani, who added that getting the refinery running was “important.”

The workout for TPPI creditors shows restructuring can be a tortuous though worthwhile effort in South and East Asia, where the World Bank says secured creditors average a recovery rate of less than 33 percent. In one part of the 2014 restructuring involving riskier debt, some TPPI creditors recovered 63 percent of their money. Standard & Poor’s said in a report this week that $961 billion of corporate debt is set to mature by 2020 in the Asia-Pacific region and conditions for refunding could be “less favorable” because of collapsing commodity prices and slowing growth in China.

Proceeds of Indonesia's PPA from Troubled Asset Management
Proceeds of Indonesia's PPA from Troubled Asset Management

TPPI was started by closely held Tirtamas Group to expand the Southeast Asian country’s output of petrochemicals used to make plastics. Building stalled when the Asian financial crisis broke out in 1998 and the plant in Tuban, East Java, fell into the hands of state-run bad-loan manager PT Perusahaan Pengelola Aset. Construction resumed in 2004 and production started two years later, only to be halted twice due to a lack of capital, the company said.

A state audit found state losses in the business totaled $2.7 billion and police are investigating the case including links to government officials, political analyst Kevin O’Rourke, the author of “Reformasi: The Struggle for Power in Post-Soeharto Indonesia”, said in a report on Friday.

As part of a restructuring completed in December 2014, the firm issued $888 million of bonds maturing in 10, 12 and 15 years to holders of about $1 billion in debt. Interest payments and fines were waived and the workout forced haircuts of between 5 percent and 37 percent, according to the terms. The plan also converted some liabilities into equity, with state-owned oil producer PT Pertamina and Pengelola Aset boosting their ownership to 74 percent in October by buying out offshore investors and creditors.

Builder Sells

TPPI’s creditors included Japanese builder JGC Corp. and hedge fund Argo Capital Management and United Overseas Bank Ltd., according to the restructuring document. JGC, which helped build the petrochemical complex, sold its holding of TPPI notes in October without disclosing the price, according to its filing. The company, which received $189 million worth of TPPI notes in the restructuring, no longer owns any of them, spokesman Kentaro Ougi said in an e-mail on Feb. 18.

“JGC had continued to look for a buyer of the bonds for a long period and successfully found it,” Ougi said, explaining the decision to sell, without giving the price.

Energy Security

TPPI’s junior debt arising from the restructuring is indicated at 18 to 20 cents, according to Robert Southey, who trades distressed debt as managing partner at Trench Capital Partners LLP in London.

“While TPPI doesn’t face over-indebtedness or onerous contracts, the level of reporting and governance all indicate to the bonds being speculative rather than investible,” said Southey. “TPPI being so illiquid, the bonds remain a play on persuading the government to buy you out.”

The government hopes the TPPI plant will cut the OPEC member nation’s fuel imports to improve its energy security. The company processes condensate from Pertamina for a fee to make gasoline, in an agreement that expires in February and may be extended until September, Wisnuwardani said. The company is seeking $150 million in loans for working capital to have greater flexibility to buy different feedstocks and produce petrochemicals as well, Himawan said.

The new debt doesn’t have a fixed repayment schedule, allowing TPPI to repay at maturity, and “this helps improve the company’s financial condition,” said Himawan.

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