Experts criticize IBRA's plan on BII's rights issue<\/p>\n
Dadan Wijaksana, The Jakarta Post, Jakarta<\/p>\n
Debates on whether or not the government should yet again use
\ntaxpayers' money to bail out Bank Internasional Indonesia (BII)
\nhave intensified just as the Indonesian Bank Restructuring Agency
\n(IBRA) has prepared a rights issue plan for the ailing bank.<\/p>\n
Banking analysts Drajat Wibowo and Anthony Budiawan shared the
\nsame opinion that any rescue plan should not put an additional
\nburden on the state budget.<\/p>\n
Their remarks follow a decision on Monday by the Financial
\nSector Policy Committee (FSPC) to approve the BII rights issue
\nplan.<\/p>\n
FSPC groups senior economic ministers and has the final say on
\nthe country's bank and corporate restructuring program.<\/p>\n
IBRA is expected to meet with the House of Representatives
\nlater this month to seek approval for the proposal. If
\nlegislators reject the proposal, the government might have to
\nclose the bank.<\/p>\n
Under the rights issue plan, the publicly listed bank would
\noffer new shares to raise some Rp 4.33 trillion (US$466 million)
\nto boost its capital adequacy ratio (CAR) to between 8 percent
\nand 12 percent from minus 47 percent at the end of last year.<\/p>\n
CAR is the ratio between capital and risk-weighted assets.
\nThe higher the ratio, the better the bank's condition.<\/p>\n
The original estimate for the size of the rights issue was set
\nat Rp 3.9 trillion. There is no clear explanation yet as to why
\nthe cost for the BII bailout has increased.<\/p>\n
The government, through IBRA, will act as a standby buyer for
\nthe rights issue. It will use bonds to purchase all the shares in
\ncase other investors decline to exercise their rights, which
\nanalysts said would be the likely case. IBRA now controls 75
\npercent of the bank, which suffered a net loss of about Rp 4
\ntrillion last year.<\/p>\n
Purchasing the BII shares, however, will put an even greater
\nburden on the already-strained state budget as it would cover the
\ninterest rate of the bonds.<\/p>\n
IBRA has argued that bailing out BII would cost less than
\nliquidating the bank, which was once the financial flagship of
\nthe Sinar Mas Group conglomerate, because a liquidation
\nalternative would force the government to also cover the
\nobligations of the bank to its third parties, which last year
\nstood at Rp 26.8 trillion, as a consequence of the government
\nblanket guarantee scheme.<\/p>\n
But Drajat criticized this argument.<\/p>\n
"They've always convinced us that once they lend a hand to the
\nbank, then that's it, the problem is over. But are we sure about
\nthis? They said the same thing when they first injected the
\nrecapitalization bonds," Drajat said on Tuesday on the sidelines
\nof a one-day seminar on recap bonds.<\/p>\n
He pointed out that when the government first injected about
\nRp 6.6 trillion worth of bonds to recapitalize the bank in 1999,
\nit argued that closing it down would cost the government up to Rp
\n13 trillion.<\/p>\n
But as it turns out, the government has injected a total of Rp
\n21 trillion worth of bonds to help BII stay afloat, he explained.<\/p>\n
The rights issue plan would increase the total cost of the
\nbailout, and there was no guarantee that the bank would turn
\nhealthy to allow a full recovery of the bailout cost.<\/p>\n
However, Drajat also said that if the government was to close
\nBII, then it did not have to fully cover all the obligations of
\nthe bank as depositors' money could be transferred to healthier
\nbanks, while obligations to affiliated parties could be dropped
\nfrom the blanket guarantee scheme.<\/p>",
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