T

imber company PT Sumalindo Lestari Jaya (SULI) plans to sell two of its subsidiaries, PT Sumalindo Alam Lestari (SAL) and PT Wana Kaltim Lestari (WKL), in an effort to improve its capital structure. The company’s equities have been declining for the last few years, while its liabilities continue to increase, the company says.

The publicly listed Sumalindo would sell 100 percent of its stakes in both subsidiaries, which are in the forestry business in East Kalimantan, to PT Mentari Pertiwi Makmur for Rp 330 billion (US$34.21 million), Sumalindo wrote in a statement submitted to the Indonesia Stock Exchange (IDX).

Sumalindo and Mentari Pertiwi, an agriculture and mining firm, signed a sales and purchase agreement last October, in which Mentari Pertiwi paid Rp 50 billion as a down payment to the former. The remaining funds will be paid by Mentari Pertiwi when both companies have signed the final sales and purchase agreement.

However, for the agreement to go through, Sumalindo and SAL were required to obtain approval from their shareholders and the forestry minister, respectively, by Dec. 31 at the latest, according to the statement.

Sumalindo declined to comment on its divestment plan as it was awaiting its shareholders’ approval. “We are holding an extraordinary general shareholders meeting [on Tuesday],” Sumalindo corporate secretary Hasnawiyah Kono said on Monday.

As of June 2012, the company’s total assets amounted to Rp 1.6 trillion. It suffered from Rp 143.86 billion in equity deficiency as its liabilities totaled Rp 1.75 trillion.

Based on Sumalindo’s pro forma financial statements, the divestment scheme will help lower its equity deficiency to Rp 84.7 billion, thus increasing its total assets to Rp 1.66 trillion.

If the divestment plan is realized, Sumalindo will use 48 percent of the funds to pay off loans, 22 percent as working capital, 15 percent as capital expenditure and the remaining 15 percent “to finance its human resources reorganization and to settle its obligations to its employees”. All employees of SAL and WKL would be laid off following the divestment, according to the statement.

Of the Rp 49.5 billion allocated as capital expenditure, the company will use some part to conduct a preliminary mining potential survey as it plans to expand its business in mining in East Kalimantan through subsidiary PT Suli Inti Resource. The remaining capital expenditure funds will be used to increase the capacity of its power plants, run by subsidiary PT Kalimantan Powerindo (KP).

At the moment, KP operates two power plants in Senoni and Loa Janan, East Kalimantan, with a total capacity of 22.5 megawatts. KP has been selling its excess power to state utility firm PT PLN since 2010, as detailed in Sumalindo’s September financial report.

Besides selling SAL and WKL, Sumalindo has also offered debt-to-equity conversions to several of its creditors as part of its capital restructuring efforts. Last June, the company signed a debt-to-equity conversion agreement with Singapore-listed Lion Trust Ltd., which acted as a trustee of the Auspicium Universal Premier Fund and Pegasus Capital Fund.

Under the agreement, a total of $20.89 million in debts to Auspicium and Pegasus will be converted into shares in Sumalindo. The shares are priced Rp 300 apiece.