Financial Restructuring in Business Turn Around ( A Case Study at PT Sierad Produce Tbk) - Binus e-Thesis

ACKNOWLEDGEMENT

  I extremely feel happy that I finally can finish this thesis in time and be thankful especially to my God, Jesus Christ for His blessing and generosity. He always give me strength, hope, and spirit when I feel down, and always show me the way, bring me to any new ideas, when I feel stuck and think there is no way out. I believe that being a Binus’ student, working at Sierad, and choosing Sierad case for my thesis did not happen coincidentally. He plans all the best in my life and without Him, I was nothing.

  I’m deeply indebted to my thesis supervisor, Mr. Parulian Sihotang, Ph.D for his immense help. The dynamism with which he guided me in executing this thesis has proved helping me a lot. The constructive comments and valuable suggestions as final words during the course of work are greatly acknowledged. Also, he was also the person that initiated this challenge and gave me the opportunity and trust to take care of the rest.

  With a deep sense of gratitude, I wish to express my sincere thanks to PT Sierad Produce Tbk, especially to the management team of the Company, Mr Budiardjo Tek as President Director, Mr Rodolfo P Pantoja as Deputy President Director, and Mr. Albert Sitorus as Marketing Director, for the direction and valuable information which is very useful in writing the thesis. Also, I thank to all Sierad’s staff, who always support and assist me during my stay in the Company.

  In addition, I would like to thank to my classmates, who have shared happiness and sadness with me during the 16 months in Binus, and have motivated me to accomplish my study. And for all Binus’ Lectures and Staffs, who always support and give me the best.

  I am deeply thankful to my beloved family who always pray for my success. I will never disappoint you and try to be the best as you wish. I hope that what I have done and got from Binus is the beginning step for my successful career in the future in order to make my dreams come true.

  Finally, I would like to thank to all whose direct and indirect support has helped me completing the thesis in time. All of your support favors and all other things that make it so worthwhile to know you.

  Jakarta, 10 November 2007 Elies Lestari Setiawan

PREFACE

  As I write this thesis, I am reminded of the mythology of Pandora, a woman who was gifted with a box. While she was warned not to open the box, stubborn her midst. Pandora was contrite for what she did, unaware that there remained at the bottom of the box, the spirit of hope.

  In Sierad case, they have made use of that spirit of hope. They have seen their share of disagreement and bitterness in the course of debt restructuring, but they have managed to rise above their human frailties, because hope is their shared vision of what they can, should and must be accomplish and it was hope that enabled them to achieve what they have achieved until now.

  It is my honor and privilege to write Sierad case for my thesis. The scheme of debt settlement, the efforts from Management, and the strategy to overcoming the crisis were so inspiring. Such debt restructuring strategy was now used as a model to other company in Indonesia on how they approach similar condition. This thesis will also invite the reader to analyze and judge for him/herself to determine some other reasons and such action being taken and not to be taken for restructuring.

  In order to have better understanding and analysis, we divide this thesis into 5 chapters as follows:

Case Description I

  The problem’s background is clearly defined in this chapter: what happened to Sierad during the last 10 years, why it happened, what kind of strategies that were taken to solve the problems, and what the result is. After read this chapter, the reader will know the whole picture of the story before start the analysis.

Business Analysis II

  This chapter shows the situation and condition in national poultry industry when the problems occurred, comparison to the competitors, and brief explanation about the Company and its business.

III. Literature Review

  This chapter provides all supporting theories used for analysis which are taken from handbook, journals, website, etc.

  

IV. Decision and Lesson Learned This chapter shows the relationship between

theory and practice

  This chapter shows the integration and relationship between theory and practice. Our analysis emphasize on how the decision was made and whether it is the best one to take. The decision especially refers to bonds conversion, where all issued bonds were converted into common stocks to prevent the Company from potential default.

V. Conclusion and Recommendation

  Based on the above analysis, at the end of writing process, the thesis will conclude whether the analysis can prove that the decision being taken was the right one, especially can benefit the Company and its Bondholders, and also provide the recommendation.

  I used both primary and secondary data as sources of information, which were collected based on direct interview with the Board of Directors of the Company, Company’s documentation, etc. Also, I’m so lucky being a Corporate Secretary of the Company right now, which enables me to obtain a lot of information and eligible data.

  As a final words, I express sincerely thanks to those who read this thesis and I hope it can give contribution and be useful for you, and can share the spirit of hope to the other company in Indonesia, especially who currently face similar problems. Please feel free to contact me directly through email at elies@sierad.co.id. We always value your recommendations and opinion about this thesis.

  Elies Lestari Setiawan

ABSTRACT

  In the first year as a publicly held company, Sierad had proved to be a highly

successful one, with outstanding financial performance recorded across the board.

and had been catastrophic for many businesses. It was inevitable that the Company

would go into default since it was unable to pay the USD 313 million of debts, which

actually were only less than 2 times of its annual revenue before the crisis. The debts

were restructured into equity, convertible bonds and rescheduled the obligations

under capital lease based on the approval from majority creditors.

  However, the story has not ended yet. Because of its credit history, the

Company could not obtain any additional financing particularly for working capital

from any source and depended on almost exclusively on internal financing, which

stalled the Company’s recovery and growth. It incurred losses every year and placed

the Company in a rather untenable situation. The management then proposed to the

Bondholders and Lessors to convert the remaining debts into equity in order to

prevent the Company from potential default.

  In May 2005, finally all of the convertible bonds and obligations under

capital lease were converted into shares (debt to equity conversion). The Company

has successfully booked a net profit of Rp 41 billion in 2006, a remarkable

turnaround after continuously incurring from several losses in previous years.

  Keywords : Crisis, Debt, Equity, Conversion, Turnaround

TABLE OF CONTENTS

  2.2.1.1 Feedmill ………………………………

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  18 6 2.2.1.6 Fast Food ……..…………………….… 18 2.2.1.7 Supporting Operation………………….

  17 5 2.2.1.5 Slaughterhouse and Poultry Food Processing……………..…………..….

  2.2.1.4 Growing Farm …………………..……

  16

  2.2.1.3 Hatchery ………………………………

  16

  2.2.1.2 Breeding ………………………………

  15

  Front Page ……………………..…………………………………………….. i Statement of Purpose ……………………………………………………….... ii ACKNOWLEDGEMENT……………………………………………………. iv PREFACE ……………………………………………………………………. vi

  ABSTRACT ………………………………………………………………….. viii LIST OF CONTENTS ……………………………………………………….. ix LIST OF TABLES……………...…………………………………………….. xii LIST OF FIGURES ………………………………...……………..…………. xiii

  2.2.1 Business Description …………………………..…

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  13 2.2 Company Analysis……………………………………….

  13 2.1.3 Commodity Price ………………………………..

  12 2.1.2 Bird Flu Outbreak ………………………………..

  2.1.1.2 PT Japfa Comfeed Indonesia Tbk ………

  10

  8

  1 CHAPTER II : BUSINESS ANALYSIS 2.1 Industry Analysis ………………………………………..

  CHAPTER I : CASE DESCRIPTION ………..……………..………………

  15

  2.2.2 SWOT Analysis……………………..…………....

  A-3

  10 DEBT TO EQUITY CONVERSION – WHY? ........................................ A-14

  A-13

  9 ARTICLE –“WABAH FLU BURUNG TAK PENGARUHI MINAT WARGA MENGKONSUMSI AYAM”………………………………

  8 ARTICLE - “EFEK FLU BURUNG HANYA SEMENTARA”……… A-12

  A-10

  7 ARTICLE – “KONSUMSI DAGING AYAM DIPERKIRAKAN TURUN”………………………………………………………………..

  A-8

  6 FINANCIAL INFORMATION, PT SIERAD PRODUCE TBK……….

  A-6

  5 FINANCIAL INFORMATION, PT JAPFA COMFEED INDONESIA TBK……………………………………………………………………..

  A-4

  4 FINANCIAL INFORMATION, PT CHAROEN POKPHAND INDONESIA TBK……………………………………………………..

  3 COMPOSITION OF STOCKHOLDERS………………………………..

  19 2.2.3 4 P Analysis………………………….…..…...…..

  2 SCOPE OF BUSINESS………………………………………………….. A-2

  1 CORPORATE MILESTONE……………………………………………. A-1

  50 APPENDIX

  49 REFERENCE………………………………………………………………….

  47 5.2 Recommendation……………………………………….

  5.1 Conclusion………………………………………………

  40 CHAPTER V : CONCLUSION AND RECOM M ENDATION

  35 CHAPTER IV: DISCUSSION AND LESSON LEARNED….….………….

  3.3 Capital Structure……..………………….…………….…

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  30 3.2 Firm Valuation…………………………………….…….

  24 CHAPTER III : LITERATURE REVIEW 3.1 Convertible Bonds ………………….......………..……..

  22 2.2.4 Financial Performance……………………..……...

  11 RATING DESCRIPTION……………………………………………… A-15

  12 BASIC ASSUMPTION………………………………………………… A-16

  13 BOND’S REDEMPTION SCHEDULE…………………………………. A-17

  14 VALUATION – USD BONDS…………………………………………. A-18

  15 VALUATION – JPY BONDS………………………………………….. A-20

  16 VALUATION – IDR BONDS………………………………………….. A-22

  17 SUMMARY – PROJECTED PAYMENT ON BOND’S INTEREST AND PRINCIPAL……………………………………………………….

  A-24

  18 FIRM VALUATION……………………………………………………. A-25

  19 BETA CALCULATION……………………………………………….. A-28 CURRICULUM VITAE

LIST OF TABLES

Table 2.1 : Chicken Consumption Per Capita in ASEAN Countries………… 8Table 2.2 : National Feedmill and Chicken Meat Production……………….. 10Table 3.1 : Calculation of Free Cash Flow …………………………………. 34Table 3.2 : Risk Premium…………………………………………………… 39Table 4.1 : Conversion Value vs Straight Value …………………………… 44

LIST OF FIGURES Figure 2.1 : Indonesia’s Meat Consumption per Capita 2003…………….

  9 Figure 2.2 : Corn and SBM Price (in USD/ bushel)………………………..

  14 Figure 2.3 : Net Loss for Year 2001 – 2003………………………………..

  24 Figure 2.4 : Proportion of Sales 2002 – 2003………………………………

  25 Figure 2.5 : Comparison – Current Ratio for Year 2001 – 2003…………...

  26 Figure 2.6 : Comparison – Debt to Total Assets Ratio for Year 2001 – 2003……………………………………………………………

  26 Figure 2.7 : Comparison – Debt to Equity Ratio for Year 2001 – 2003…..

  27 Figure 2.8 : Comparison – Return on Assets for Year 2001 – 2003……….

  28 Figure 2.9 : Comparison – Return on Equity for Year 2001 – 2003……….

  28 Figure 3.1 : Default Spread…………………………………………………

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