WHEN ASTRA COULD NOT PAY

It wasn't quite as simple as that. But Astra's struggle for the deal does show how such complex negotiations are carried out. There were the usual clashes between debtor and creditors, and differences among the lenders too. Says Ota Shingo, corporate banking chief in Singapore for the Industrial Bank of Japan (IBJ), one of Astra's top five creditors: "We had to spend so much time because the negotiations were so hard and tough."

The effort was truly multinational. Besides Chase, Sakura Bank and Sumitomo Bank also advised Astra. Creditors included banks and bondholders from the West, Japan and Indonesia. Most meetings took place in Singapore and Jakarta; Astra also met Japanese lenders regularly in Tokyo. Explains Riebe: "Astra had every debt instrument you could think of. Rupiah bonds and loans, bilateral loans, direct loans, U.S. dollar bonds and loans, convertible bonds -- they had it all."

Not surprising for the second-largest company in Indonesia. Astra's core business is car and motorcycle assembly. Listed in 1990, it has about 120 enterprises, from oil-palm plantations to consumer goods. Professionally managed, the company enjoyed a good reputation among bankers and investors. In the boom years, that and its political connections helped Astra borrow money easily. Then the Crisis hit. Last fiscal year, revenues plunged 30%, as auto sales stalled. With the rupiah's collapse, Astra's debts of about $2 billion brought it to the brink.

Re-enter Rini Suwandi. She had been at Astra for a decade, mostly as finance director, but had left in early 1998 to become deputy chair of the Indonesian Bank Restructuring Agency. She returned to Astra in mid-year as president-director and CEO. The debt mountain was a priority. In August, Suwandi told lenders that Astra had to stop principal payments, but would still pay interest. They accepted, since so many other firms weren't even doing that.

In October, Suwandi took a more drastic step, telling creditors interest payments would halt and the debt would have to be restructured. That was not well received. Recalls Suwandi: "Some were quite rude and were just screaming 'Astra has cash! You have to fulfill your commitment.'" She argued that the company needed to put aside funds to stay afloat if the economy worsened. News that Astra was selling a couple of assets only made creditors more anxious, some warning they would refuse to discuss restructuring.

In November, Astra took what Ota called a "very unusual step": it put together its own creditor committee -- four Japanese banks, two European and one domestic (Bank Negara Indonesia) -- and unveiled a restructuring plan. Many creditors, particularly the Japanese, were upset that it included a debt buy-back scheme. "Some purely short-term lenders wanted to liquidate their positions at a loss and get out," Riebe explains. "If you don't have a plan that addresses the diverse requirements of creditors, you're not going to get a deal closed." Adds Collins: "The debt buy-backs were very sensitive. Banks didn't want cash going out of the company if they were not getting paid interest and principal. They were concerned about distressed borrowers buying debt very cheaply and making a huge gain at their expense."

A series of marathon meetings began; progress was slow. "There were limitations on what the company could offer," IBJ's Ota concedes. "But we had to be assured that their business plan was viable." Taking a haircut was not an option for IBJ and other Japanese banks, most of which faced worse troubles at home. "If we took a haircut, maybe others would ask us to do the same." Chase's Collins adds: "The Japanese haven't done much restructuring so they're not comfortable yet with things like debt-equity swaps."

Ota recalls a time early this year when "I thought there would be no way for us to come closer." The impasse -- "too strong a word," says Collins -- was broken when Astra agreed to pay interest and speed up disbursements on principal. In April it offered a new plan to split its debt into three tranches to be paid at varying schedules, the last and smallest one over seven and a half years. A final deal was signed last month in a five-star Jakarta hotel. Astra is now busy negotiating similar deals for many of its subsidiaries.

The key, says Collins, was trust. Suwandi agrees. "There were moments I was hurt," she says. "I had a relationship with many [banks]. Suddenly trust was not there. It was a shock." Collins urges creditors to learn from their woes. "If they had spent more time on due diligence on the front end, they'd be a lot better off on the back end. Many banks came into this [negotiation] very bitter." To seal the deal, they had to get beyond the recriminations and, with Astra, find a way out.

- With reporting by Jose Manuel Tesoro / Jakarta

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