Shoeb Kagda, Jakarta – Indonesian bumiputra business conglomerate Bakrie and Brothers and state-owned airline Garuda have reached landmark debt restructuring deals – but analysts say many more such deals must be completed quickly if the country's corporate climate is to improve this year.

After three years of negotiations, Bakrie has won shareholder approval for its plan to give creditors 95 per cent of the company in lieu of US$1.1 billion (S$1.9 billion) of debt. The deal resolves one of the biggest cases of corporate debt overhang since the financial crisis of 1997-1998 left many Indonesian companies insolvent.

As part of the arrangement, Bakrie – a diversified company with businesses ranging from palm oil to telecommunications – will issue 36.8 billion new shares, representing 95 per cent of its enlarged capital, through a rights offer. A special purpose vehicle, owned by the creditors, will take all the new shares. After the debt-to-equity swap, the Bakrie family's stake in the holding company will be diluted to 3.34 per cent from 51.5 per cent.

"This debt-to-equity swap will help us turn to profit this year because our interest costs will drop significantly," Irwan Sjarkawi, president director of Bakrie and Brothers, told reporters.

Besides giving the 95 per cent stake to creditors, shareholders also agreed to give creditors Bakrie's majority stake in Bakrie Sumatra Plantation, a group of oil palm, rubber and fruit plantations, and its 20 per cent holding in mining firm Arutmin Indonesia. The shareholders also agreed to pay creditors the US$49 million Bakrie and Brothers raised through the sale of subsidiary Bakrie Kasei in October.

"The problem is there is no substantial alternative," Choi Dae Ho, president director of Dongsuh Kolibindo Securities, one of Bakrie's Korean lenders, said when creditors voted on the plan.

Sity Samudra, head of debt capital markets at Deutsche Bank, concurred, saying the Bakrie family had little choice but to hand over the company to its creditors. "Unlike some other Indonesian companies, such as Astra International or Danareksa, Bakrie did not have strong bargaining power with its creditors given its poor operating profits," she said.

In the debt workout involving Garuda, the Indonesian government and the airline's foreign creditors have approved the restructuring of more than 80 per cent of the company's US$1.64 billion in loans. "So far we have gained creditors' approval on our debt restructuring proposal representing 82 per cent of the total debts," Garuda president director Abdul Gani told a parliamentary hearing on Wednesday.

Indonesia's economic crisis of the late 1990s sank the rupiah and caused the state-owned carrier's debts – mainly short-term dollar-denominated loans – to soar. To avoid bankruptcy, the government agreed in September 1999 to restructure the debts. In written answers submitted to Parliament, Garuda said the debt restructure would include: converting US$141 million in loans from state-owned Bank Mandiri and airport operator Angkasa Pura into convertible bonds; rescheduling US$610 million in debts to the European Credit Agency, a consortium of the firm's foreign creditors, over 16 years; and converting more than US$400 million in loans to the government into equity.

Garuda has also been trying to obtain agreement from the holders of its commercial paper amounting to US$460 million. It has said it will repurchase part of the notes at a discount and reschedule the rest over eight years. As part of the nation's privatisation programme, the government plans to float Garuda in 2003.

The two debt deals, however, do not represent any significant progress in efforts to restructure some US$64 billion Indonesian companies owe local and foreign creditors.

Rajesh Behal, of Celebes Capital Management, told BT: "The Bakrie deal has been going on for some time now, while Garuda is just rescheduling its debt. You can't say these two deals are going to make a major difference."

Indonesian corporations found themselves in a black hole after the rupiah's dramatic collapse against the US dollar at the height of the financial crisis. Although the currency has recovered some of its value, most corporations with US dollar borrowings are still unable to service their loans. The rupiah fell 27 per cent against the US dollar in 2000, making it the third-worst performing currency that year. It finished 2000 at 9,600 to the greenback – its lowest level for the year.