Quick Take: Indonesian Restructuring Case Studies

[Note: My Quick Takes are my personal commentaries and do not represent IWIRC Indonesia. I have moved in February 2025 to Acrostics Asia.]

By Eveline Danubrata

My long-time lawyer friend told me over the years that he wished there was a list of takeaways from Indonesian restructurings, so I’ve finally compiled a relatively short list of case studies.

Bakrie Telecom

In 2015, Bakrie Telecom’s offshore bondholders were not recognized as direct creditors in the Indonesian company’s local in-court restructuring (PKPU). Even though the bond was guaranteed by the onshore parent, Bakrie Telecom’s lawyers argued that the bondholders were creditors of the Singapore special purpose vehicle (SPV) that issued the notes.

The Singapore SPV—which transferred the bond proceeds to Bakrie Telecom via an inter-company loan—was listed as its creditor and held the voting rights. At the end of the vote, Bakrie Telecom announced that its restructuring proposal was approved by 94.5% of its creditors, including the Singapore SPV.

The case created an uproar in the international community because Indonesian companies typically issued high-yield bonds with this structure to reduce their withholding taxes (it’s important to note that not all Indonesian borrowers are like Bakrie Telecom). Investors who bought these bonds also believed they had recourse against the onshore parent in the event of default.

Buying bonds that are directly issued by an Indonesian company could be an option to mitigate the misuse of offshore SPVs, but investors may face more limited debt supply and less favourable pricing. Direct creditors have also experienced other obstacles when trying to enforce their claims in Indonesia.

Sri Rejeki Isman (Sritex)

Indonesian textile company Sri Rejeki Isman (Sritex) entered PKPU in 2021 after failing to extend its syndicated loan and issue new bonds for refinancing. Several creditor friends were shocked by the former market favourite’s spiral into distress, but they were in for more surprises during the restructuring.

First, Sritex’s PKPU administrators accepted claims totalling USD 1.8 billion equivalent, around 64% higher than the reported debt of USD 1.1 billion as of end-2020. In short, around USD 700 million of debt that was not disclosed in Sritex’s balance sheet had surfaced during the PKPU and a big chunk was in the form of related party loans.

Second, Sritex’s presentations to support its restructuring proposal left investors questioning the entire business. These investors believed that Sritex was an integrated textile company with stable margins, yet more than half of its FY20 sales turned out to be from trading and tolling, which is typically a lower-value segment. Furthermore, an independent auditor impaired a significant portion of Sritex’s inventories and receivables.

Sritex eventually passed its restructuring proposal even though some creditors said they were excluded from the vote. With the benefit of hindsight, these are the potential takeaways:

1. Timing is everything. Sritex could have perpetuated the musical chairs if it could find new lenders, but banks and bondholders became more cautious after the default of its textile peer Duniatex.
2. Investors should take a closer look at the working capital trends and whether such elevated margins or inventories make sense.
3. Creditors may consider ringfencing a borrower, such as by restricting it from entering into or guaranteeing related party loans, but this depends on whether the lenders have the power to dictate such terms.

Nevertheless, this is not the end of the story because Sritex is now facing a court petition to cancel its PKPU deal and declare it bankrupt on the basis that it had defaulted again.

Indonesian Coal Miners

Loans to Indonesian miners were typically secured by their assets, but this practice was disrupted when Standard Chartered failed to recoup most of its USD 1 billion loan to Indonesian businessman Samin Tan’s Borneo Lumbung Energi & Metal.

In 2016, Standard Chartered’s USD 628 million claims against Borneo Lumbung’s operating unit, Asmin Koalindo Tuhup (AKT), were rejected by a local court as the company’s lawyer Hotman Paris argued that it did not get approval from the Indonesian government to use the coal mine as collateral for the loan.

Article 33 of Indonesia’s 1945 Constitution says that natural resources belong to the state and the Coal Contract of Work (locally known as PKP2B) granted by the Energy and Mineral Resources Ministry requires the concession holder to seek permission from the government before transferring its rights. In short, lenders could be at the mercy of the Indonesian borrowers and officials if they were to accept these assets as collateral.

Another option is the Cash Account Management Agreement (CAMA), which requires a borrower to deposit cashflow from its asset into a specified account to service its debt. However, this is also not foolproof as someone has to put the money into the CAMA account.

In 2016, Indonesian coal miner Berau Coal Energy and its units filed a lawsuit in Jakarta against lawyers representing a group of bondholders, alleging that they sent a letter that “basically threatened” a coal buyer with legal action if it made payments to accounts other than those specified in the CAMA, according to Berau’s stock exchange filing.

Another Indonesian coal miner also had a dispute with a lender who demanded more oversight as it suspected that cash was being diverted elsewhere, resulting in a smaller pool of money to pay creditors down the line. A restructuring friend said creditors have little visibility when the cash drops through “a hole in the waterfall”.

The potential takeaways are the following:

1. Get as close to the cash-generating asset as possible, such as lending directly to the operating company (opco), drafting the CAMA with the opco, or installing directors at the opco level.
2. A foreign lender may consider teaming up with a trusted local partner who can take more actions onshore.
3. No matter how tight a loan or bond contract seems, a creditor’s relationship with the borrower may play a bigger role in determining the outcome of the negotiations.

Despite these suggestions, a second restructuring friend cautioned: “You can’t eliminate the risk, you can only mitigate the risk.”