PT. Sunson Textile

completed

Description of Company and Purpose of ProjectAt the end of 1999, the company''s total outstanding debt was US$49 million, including a long-term syndicated loan of US$ 37 million. The syndicated loan was restructured in late 1999 and entails: (1) an annual option where the syndicate lenders have an option to call their loan if two-thirds of the lenders request such prepayment; (2) instalments of US$ 5 million during 2000, 2001 and 2002; and (3) a bullet repayment of US$ 22 million in September 2002. Since the company''s cash generation in 1999 was US$ 13 million, it is clear that the company cannot service the bullet repayment out of its operational cash flow. In addition, with respect to the refinancing of the bullet payment, some syndicate lenders have already indicated that they do not want to refinance due to reduced country exposure limits and their corporate strategy to get out of the loan business. The purpose of the croject is to restructure the syndicated loan and to extend the loan maturity so that the debt could be reasonably serviced by the company''s operational cash flow.Development Impact and IFC''s RoleThe purposed investment''s main development impact is the demonstration effect that will be created by IFC''s support to an Indonesian company at a time when local commercial banks are unable and foreign commercial banks are still reluctant to consider long-term financing. By helping viable companies continue normal production and remain competitive, IFC’s lending at this time will send a positive signal to international investors and restore some of the confidence in the Indonesian private sector. IFC’s B loan umbrella will also provide additional assurance to foreign lenders inducing them to increase their exposure and extend their maturity.In addition, by supporting an export-oriented company such as Sunson, the project will generate foreign exchange revenues necessary to assist Indonesia''s economic recovery.The project also provides for knowledge transfer to a second tier company that has shown strong interest in further improving its management practices. IFC industry and environment specialists made several recommendations regarding (i) environmental improvement, (ii) inventory reduction and (iii) de-bottlenecking the company’s production. These suggestions were discussed with the company and will be pursued by the management.Furthermore, the project also provides for improved corporate governance. Although the company discloses its related parties transactions required by the Jakarta Stock Exchange, IFC shall impose additional restrictions. As such, transparency will increase which will also protect the interest of minority investors. This will serve as a good example for other Indonesian companies to follow.