Some 15 years ago I sold the 1856 New South Wales Regatta Cup to the Wijaya family in Jakarta. I delivered this in person to their house, a compound surrounded by barbed wire with four gun towers in the corners each with armed guards watching over the safety of the family.
In the context of this visit I became interested in Christopher Barr’s paper read to the Centre for International Forestry Research (CIFOR) at an International Symposium in China in June 2001, from which I base the following.
Asia Pulp and Paper (APP) is a corporation controlled by the Wijaya Family whose head is the Indonesian business man, Eka Tjipta Wijaya. This family business is part of Sinar Mas, a conglomerate also controlled by the family then incorporated in Singapore and listed on the New York Stock Exchange in 1995.
By 1997, and as a result of the Asian financial crisis, APP became one of the world’s largest corporate debtors when it carried over US$7.1 billion in outstanding obligations.
In early 2001, APP announced a debt standstill stating that it would stop paying principal and interest on outstanding obligations due to severe financial difficulties. By then, APP’s debt was a staggering US$13 billion.
Amid accusations of fraud by sceptical investors, primarily fund managers who had bought into APP’s bonds earlier who wondered where all the money had gone, which was reasonable given the magnitude of the funds raised and the fact that Sinar Mas’ other operations had suffered badly from the Asian financial crisis and needed funds badly.
The Widjayas moved their base from Singapore back to Indonesia. Investigations made by separate auditors for the creditors and for APP later uncovered suspect or questionable transactions and balance sheet entries made by APP’s Indonesian subsidiaries in preceding years, such as provisions for receivables and doubtful debts, as well as reported derivative losses, to the tune of US$5 billion. It is surprising that there does not seem to be any official follow-up action to trace the route back to where all this money ended up, though one might be able to deduce with a high degree of probability.
Ultimately, the debt repayment issue came to a partial close with APP and its creditors agreeing to a repayment scheme that would see APP return creditors almost US$7 billion over 10 years, covering the debt of its Indonesian subsidiaries.
As for the Widjaya family, ultimate owners of APP, there was no forced pledging of their personal assets, nor any injection of assets to prop up the company for debt restructuring. The family and their associates were still left as the operational managers after the whole debacle. The bondholders and ADR holders were the ones who suffered the most, the former suffering haircuts as high as 50% or more.
This default on payments threatened to trigger the collapse of Indonesia’s second largest private sector bank.
The deterioration of APP’s financial position carried significant risks for financial institutions in China where the company had accumulated debts of US$3.6 billion The Bank of China, acting as syndicate leader, turned a large part of this debt into equity.
Most of APP’s financial obligations were owed to international investment banks and bond holders from North America and Europe.
The Wijaya Family, using their power over an Indonesian government riddled by corruption, survived this debacle, making a sharp reduction in all investment relating to long term sustainability; their plantation companies slowed their planting schedules, scaled back plantation maintenance and cut expenditures on research and development.
As a result APP’s pulp mills were fed by pulpwood harvested from outside Sumatra relying increasingly on illegally harvested timber, creditor banks even found themselves negotiating at gunpoint; a most unsettling experience.
HSBC has financed Asia Pulp and Paper (APP), a company that has been exposed as being responsible for the destruction of large areas of Indonesian rainforests. .
More than half of Indonesia’s forests have already been destroyed and an area of forest the size of Belgium is disappearing in Indonesia every year.
Indonesian paper producers, including APP, are to blame for a significant amount of this destruction.
APP produces cheap Indonesian paper sourced by clear felling wildlife rich Indonesian rainforest.
It is estimated that most of this paper has entered more than half the UK stationery supply chain and was being used by UK consumers including schools, businesses and public organisations. The APP paper is mostly un-branded being re-branded by British paper companies.
APP would seem from the above to be the perfect partner for Gunns for both companies would appear to sing from the same tune sheet.