FORESTRY play United Fiber System (Unifiber) has upped the stakes in the tangled battle for a heavily indebted Indonesian pulp mill by threatening to walk away from the deal.

　　The company said yesterday it would bail out rather than enter into a bidding war with Indonesian billionaire Putra Sampoerna, who is reportedly close to reaching a deal with the mill's largest creditor, Bank Mandiri.

　　This is despite reports last Saturday that Unifiber had an iron-clad deal to buy the Kalimantan mill.

　　'The deal must make business sense for the company and its shareholders,' Unifiber's chief executive, Mr Kishore Dass, told The Straits Times yesterday.

　　He said cash flow from the mill, Kiani Kertas, would be needed to service the debts incurred in buying it. 'At some point, it will become unprofitable for us to do the deal on a project finance basis.'

　　In stockbroking terms, Kiani has been 'in play' since last month when Mr Sampoerna reportedly offered to pay shareholders US$200 million (S$327 million) in cash and settle Mandiri's US$201 million debts.

　　But Mr Sampoerna's offer has been silent on other Kiani creditors, including United States investment bank JP Morgan, which are altogether owed another few hundred million dollars.

　　Meanwhile, Unifiber has not made a formal offer for Kiani. Instead, it has signed a letter of intent with Kingsclere, which is owned by Unifiber's second-largest shareholder, Mr Wisanggeni Lauw.

　　The letter gives Unifiber the right to buy into Kiani after Kingsclere executed an 'exclusive sales and purchase (S&P) agreement' it signed with the mill-owners, led by retired general Prabowo Subianto.

　　Few details have emerged on the Kingsclere deal. What was reported was a plan to buy Kiani for US$700 million - US$200 million in cash and assuming US$500 million in debts.

　　A Jakarta Post story yesterday quoted Mandiri spokesman Ekoputro Adijayanto as saying that Mr Sampoerna had agreed to repay Kiani's debts to the bank in full rather than in instalments, as Unifiber had proposed.

　　But Mr Ekoputro was reported as saying Mandiri 'will remain open to any re-offer from Unifiber, assessing where their funds will come from and their commitment in paying up their offer'.

　　The final word on Kiani's purchasing and debt settlement will still lie with Mandiri, he added.

　　However, Unifiber's Mr Dass described Mandiri's actions as an attempt to get back its money in full. 'At the end of the day, it is up to Prabowo whether he keeps his word and sells to whoever he signed the S&P agreement with,' he said.

　　Mr Dass said the necessary financing to buy Kiani had been put in place by the company's financial adviser, Deutsche Bank.

　　'We cannot put in the final structure of the financing yet. We are clear what Mandiri wants. But there are other creditors and as a listed company, we have a specific process to follow before we can close a major transaction,' he said.

　　But he is hopeful that the Kiani deal will be completed by the end of the first quarter, after solving the Mandiri debt issue.

　　At stake for Unifiber is its efforts to transform itself into a world-class pulp company using Kiani as a springboard.

　　Built at a cost of US$1.2 billion, Kiani sits on 3,400ha, supported by infrastructure including power and effluent plants and a water treatment plant. It can produce 525,000 tonnes of pulp a year.

　　It has been operating at more than 60 per cent capacity since late last year, when its management was taken over by Unifiber, after earlier coming to a standstill for lack of working capital.

《The Straits Times》