By Timothy Mapes. Negotiators for the Indonesian Bank Restructuring Agency and export-credit agencies of the U.S. and 10 other nations reached a preliminary understanding about how to restructure $6.7 billion in debt owed by the Indonesian units of Asia Pulp & Paper Co., a company official involved in the talks said. If the understanding is approved by the agencies themselves, it would mark a major step forward for one of the largest and most complex debt-restructuring programs in emerging-markets history. After several days of talks, negotiators agreed on a set of principles to address some of the objections that the 11 foreign lenders had offered about IBRA's plans to restructure APP's debt, said Gandhi Sulistiyanto, vice chairman of APP's restructuring task force. The foreign export-credit agencies and IBRA have been deeply at odds about how to achieve that objective. Singapore-based APP is Asia's largest pulp-and-paper company outside Japan, and it has operations in Indonesia and China. Two years ago it stopped making most payments on $13.9 billion in debt - owed to hundreds of banks, bondholders, pension funds and other creditors around the world - and debt-restructuring talks have continued inconclusively since. IBRA, APP's largest single creditor with $1 billion held, signed a deal with APP in December under which the company's four Indonesian units would fully repay just $1.2 billion of $6.7 billion they owed over a 10-year period. The rest would be refinanced or exchanged for convertible bonds. But nearly all foreign creditors rejected that plan, describing it as a sweetheart deal for APP's founding Widjaja family that would force the creditors to take millions of dollars in write-offs. Governments of the U.S., Japan, Canada and eight European nations warned Indonesia would have difficulty financing future projects if the restructuring proceeded as planned. In particular, the foreign lenders complained that IBRA's plans lacked provisions to force APP to use all available cash from its operations to repay debt, and that they didn't include mechanisms to discourage the company from defaulting again. To address those concerns, IBRA and negotiators for the export-credit agencies have agreed in principle to set up an oversight committee and financial controller to oversee APP's Indonesian operations during the restructuring. Representatives of IBRA, the export-credit agencies and APP would be involved in those committees. APP also would issue convertible bonds that could be changed into shares if APP defaults on debt repayments, according to people familiar with the compromise plans. However, officials warned that the preliminary agreement needs to be approved by the boards of the export-credit agencies, and some technical points need to be worked out. A spokesman for the export-credit agencies declined to comment on the discussions, noting that meetings are under way about the plans. (Copyright (c) 2003, Dow Jones & Company, Inc.).