Ailing paper producer PT Kertas Leces is seeking the protection of a bankruptcy court to give the company time to settle its mounting debts.

Kertas Leces, which currently has total debts of around Rp 2 trillion (US$160.3 million) to 26 creditors, has formally filed a debt postponement petition (PKPU) through the Surabaya commercial court to allow it to restructure its debt payments to its creditors.

The main points in the proposal are to carry out a debt-to-equity swap under which creditors will own stakes in Kertas Lecesin in return for exemption from debt payments and to find investors to help the company develop a more profitable business.

'€œWe will bring the two options to the table, but we think that the second one is the most feasible option right now,'€ said Kertas Leces president director Budi Kusmarwoto. If the court accepts the proposal during the trial, which will begin in the middle of January, the firm will be saved from bankruptcy.

Kertas Leces, which is owned by the government, has suffered losses in nine consecutive years. The company, which has total assets of only Rp 1.2 trillion, is currently carrying out efforts to transform its business focus from conventional paper to high-value specialty paper.

Conventional paper is the kind commonly used for cultural and industrial purposes, such as for newspapers, magazines, books and cement sacks.

Specialty paper, meanwhile, is used for highly specified purposes, including for banknotes, tea bags, fake eyelashes and air-conditioner filters.

Specialty paper offered a profit margin of up to 60 percent, while conventional paper offered only around a 15 percent profit margin, Budi said.

Under its business plan, Kertas Leces aimed to boost production of specialty paper to reach 50 percent of its total production by 2020, abaca pulp (also a kind of specialty paper) to 40 percent and conventional paper to around 10 percent, he explained.

Under the plan, Kertas Leces hopes to pocket Rp 1.7 trillion in revenue and Rp 500 billion in profit by 2020, Budi said.

The firm, which has seen declining production throughout the years, also plans to operate 11,000 hectares of abaca plantation in North Nias, North Sumatra, and 5,000 ha in Simeulue, Aceh.

Budi said that his firm would need no less than Rp 300 billion to carry out the transformation, including for the plantations, and that his firm was in discussions with US- and China-based investors to that end.

He explained that Kertas Leces planned to partner with two investors to establish a joint venture, which would be dedicated to producing bank notes, and to open the abaca plantations.

'€œThe move, however, depends on the decision of the PKPU trial,'€ he said, adding that his firm would offer part of its stake to the investors in exchange for their investment, diluting the government'€™s stake in the firm.

State-owned enterprises (SOEs) expert Sunarsip told The Jakarta Post that diluting the government'€™s stake in a non-strategic state enterprise was justifiable if the move was aimed at improving the firm'€™s performance.

Kertas Leces, which claimed to be the country'€™s largest paper producer during the late Soeharto'€™s regime, now produces only 20,000 tons of papers per year.

'€œEven if we reached our current full capacity of 180,000 tons per year, it would still make up less than 2 percent of total national production capacity for paper,'€ Budi said.

Amid financial difficulties, the 74-year-old firm has slashed the number of its employees to around 1,100 people from 2,000 in 2012.

The ailing firm was included on the list of SOEs to receive a state capital injection in 2012, but the government eventually decided not to materialize the plan.

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