R

emember publicly-listed Polysindo Eka Perkasa, Indonesia’s largest polyester yarn producer, which was declared bankrupt in February 2005 by the Commercial Court for defaulting on almost US$2 billion in debts?

The country’s only integrated polyester, chip fiber and yarn manufacturer changed its name to Asia Pacific Fibers (APF) in December and revived operations and generated $350 million in total net domestic and export sales revenues last year.

But the company remained saddled with large (albeit decreasing) operating losses due to mountains of debt because of the protracted restructuring process of its secured debts, which total $1 billion.

“Our main handicap has been inaccessibility to normal bank financing because the protracted secured debt negotiations, which classify our company as being in default,” APF Corporate secretary H. Tunaryo told The Jakarta Post.

APF president S. Jegatheesan said the company survived only with pre-financing such as advance payments and working capital loans from its loyal customers immediately after state-owned BNI halted a $100 million working capital loan in March 2005 following the bankruptcy decision.

The company’s financing capacity, however, improved significantly in 2006 after APF’s unsecured creditors agreed to convert most of the company’s $630 million in debts into equity capital, leaving only $18.6 million in outstanding unsecured debts.

Major unsecured creditor Dutch Damiano Investments BV, which is equally owned by ADM Capital Hong Kong and Spinnaker Capital Group of London, acquired almost 61 percent of APF through the purchase of APF unsecured and secured debts from the market.

The investing public owns 33.77 percent and a national company the other 5.5 percent.

“From then on it has been Damiano Investments that has funded our operations with working-capital loans and letters of credit,” Jegatheesan added.

APF’s debt crisis dates back to 1998 during the height of Indonesia’s financial and political crises when the foreign debt burden of Polysindo and its subsidiary, Texmaco Jaya, skyrocketed after the rupiah collapsed from Rp 2,500 to Rp 15,000 to the dollar.

Polysindo and Texmaco and its fixed assets were eventually acquired by the Indonesian Bank Restructuring Agency (IBRA), the government body then in charge of restructuring distressed assets taken over from nationalized and bankrupt banks.

Polysindo’s debts remained unresolved after IBRA ceased operations in 2004 and its distressed assets were transferred to state-owned PT Perusahaan Pengelola Aset (PPA), the asset management company currently in charge of managing and restructuring assets taken over from the now defunct IBRA.

PPA holds about 28 percent of APF’s $1 billion in secured debts and all the titles to APF polymer, chip and fiber plants and lands in Karawang, West Java, and to a polyester yarn plant in Kaliwungu, Central Java.

“All secured creditors, representing 72 percent of all debt, except PPA, have agreed on APF’s secured debt restructuring plan to convert $897 million — almost 90 percent of secured debts — into equity capital to reduce APF total unsecured and secured debts to a sustainable level of $126 million,” Tunaryo said.

He said APF and PPA hoped to complete the secured debt restructuring before the end of the year so that APF could again access bank financing to raise capacity utilization and generate new investment.

Jegatheesan said debt restructuring is crucial for the future of APF and the country’s textile industry in general in view of its major role as the largest — and the only integrated polyester producer in the country.

Vertical integration seems to be APF’s competitive cornerstone, with its polymer plant operating its own purified terephthalic acid manufacturing unit with an annual capacity of 340,000 tons and staple fiber plan with 144,000 tons, both in Krawang and polyester yarn plan with 210,000 tons in Kaliwungu

Polyester has now replaced cotton as the main material for textiles and apparels due to limitations in cotton production. Polyester has increasingly been used for a wide range of products such as textiles and apparel, automobiles, medical hygiene, textiles, geo-textiles for construction, safety and protective wear and home furnishings.

Jegatheesan said global figures showed that cotton fiber production increased only by 48 percent from 17.67 million tons in 1987 to 23.3 million tons in 2008 while synthetic fiber (mostly polyester) almost tripled from 14.4 million tons to 41.4 million tons in the same period.

APF accounts for 27 percent of the country’s total polyester yearn capacity of 791,350 tons and 23 percent of the total polyester fiber capacity of 605,150 tons.

Last year, APF sold 65 percent of its total output to domestic industrial users earning $275 million and 35 percent to South America, Asia, Europe and the Middle East, earning $110 million.

“In addition, our indirect exports [our yarn and fiber] used in
exported textiles and garments by our customers were estimated at $970 million last year. Hence we contribute more than 10 percent or our $10.40 billion in textile and garment exports last year,” Jegatheesan added.