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APP bonds invalidated


September 20, 2004
By Pulp & Paper Canada

Over $550 million in bonds sold by Asia Pulp and Paper have been invalidated. The District Court of Kuala Tungkal,…

Over $550 million in bonds sold by Asia Pulp and Paper have been invalidated. The District Court of Kuala Tungkal, Indonesia has abrogated bonds sold in 1995 by APP International Finance Company B.V. and unconditionally guaranteed by P.T. Lontar Papyrus Pulp & Paper Industry and Asia Pulp & Paper Company. Although Lontar didn’t go so far as to dispute receiving the funds, it did claim the bond insurance was a, ‘deceptive scheme perpetrated by the indenture trustee, collateral agent, underwriter and depositary to generate fees’.

The court discovered the basic structure of the bond insurance and the collateral security for the bonds are invalid under Indonesian law. The ruling was not altogether unexpected, as several Indonesian corporate debtors, including APP have in the last two years started to use the local legal system to sue their creditors and nullify international finances.

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