IBRA may be forced into fire sale if cash target raised<\/p>\n
JAKARTA (JP): The Indonesian Bank Restructuring Agency (IBRA)
\nmay be compelled to sell its assets at a huge discount if the
\ncash-strapped government raises the agency's 2001 cash target,
\nthe agency's chairman Edwin Gerungan said.<\/p>\n
Edwin said late last week that even with the initial target of
\nraising Rp 27 trillion (US$2.3 billion) in proceeds for this
\nyear, IBRA was already facing a lot of challenges.<\/p>\n
"There are a lot of challenges, but we think we can (meet the
\nRp 27 trillion target)," he told reporters prior to a meeting
\nwith several members of the House of Representatives Commission
\nIX on state budget and finance.<\/p>\n
"Selling the assets is not easy ... it takes time," he said.<\/p>\n
He added that one of the challenges was that the market had
\nbeen forcing the agency to sell the assets at a huge discount.<\/p>\n
IBRA, a unit under the finance ministry, controls various
\ntypes of assets including bank non-performing loans (NPLs) and
\nfixed assets worth more than Rp 600 trillion transferred from
\nailing banks and former bank owners in the aftermath of the 1997
\nfinancial crisis.<\/p>\n
The agency, set up in 1998, is mandated to sell the assets
\nuntil 2004 in a bid to raise cash to help finance the state
\nbudget deficit.<\/p>\n
The government has targeted IBRA to raise around Rp 27
\ntrillion in proceeds this year.<\/p>\n
But as the current deficit could widen to around 6 percent of
\ngross domestic product (GDP), from the initial projection of 3.7
\npercent of GDP, particularly due to the weakening rupiah and
\nrising domestic interest rates sources said that the government
\nwas considering raising IBRA cash target.<\/p>\n
Finance Minister Prijadi Praptosuhardjo is expected to propose
\nto the House early next week a set of measures to resolve the
\ndeficit problem.<\/p>\n
Edwin declined to comment on the new plan, but IBRA deputy
\nchairman Felia Salim confirmed that the government was planning
\nto raise the IBRA cash target for this year by another Rp 2
\ntrillion. "But this is not a final figure," she said.<\/p>\n
Experts have said that the current domestic political and
\nlegal uncertainties were creating difficulties for IBRA to sell
\nthe assets at a good price, particularly as the agency was also
\nfacing competition from similar agencies in neighboring countries
\nwith relatively stable political conditions.<\/p>\n
They also said that the sharp fluctuation in the exchange rate
\nof the rupiah against the U.S. dollar and the rising domestic
\ninterest rate would be a significant obstacle in restructuring
\nthe massive amount of NPLs held by IBRA. The agency must first
\nrestructure the NPLs before selling them to investors.<\/p>\n
But selling the IBRA assets at a huge discount will surely
\nanger House members, who have set a relatively high 70 percent
\nrecovery rate for the IBRA assets.<\/p>\n
The recent snags in the sale of a number of palm oil
\nplantations to Malaysia's Kumpulan Guthrie Bhd. illustrates
\nIBRA's difficulties in pushing through the asset sale program.<\/p>\n
Several legislators and farmers' associations had forced IBRA
\nto review or cancel the deal with Guthrie citing national
\ninterest. However, after high level talks involving President
\nAbdurrahman Wahid and Vice President Megawati Soekarnoputri the
\nagency managed to close the $370 million transaction, IBRA's
\nsecond largest deal so far after the $500 million sale of shares
\nin publicly-listed PT Astra International in 1999 to Singapore's
\nCycle & Carriage.<\/p>\n
IBRA is now planning another landmark deal to sell shares in
\nthe publicly-listed Bank Central Asia (BCA) and Bank Niaga. But
\nthe agency seems to be facing trouble from legislators
\nparticularly in the sale of 40 percent BCA shares because the
\nHouse had demanded the sale be conducted both via public offering
\nand strategic sale.<\/p>\n
Sources at IBRA said that maximum proceeds could be obtained
\nfrom strategic sales, but the amount of shares to be sold must be
\nlarge enough, at least 40 percent, to make investors willing to
\npay a premium.<\/p>\n
Edwin said that IBRA would conduct the sale of the BCA shares
\nwithin the "corridor" set by the House. "The financial advisers
\nwill decide on which (sale) mechanisms would be conducted first,"
\nhe said.<\/p>\n
Most of the fixed assets under IBRA are those transferred from
\nindebted former bank owners including the giant Salim Group (the
\nformer owner of BCA), tycoons Sjamsul Nursalim, Mohamad Bob
\nHasan, and Usman Admadjaja.<\/p>\n
IBRA said in an advertorial last week that it planned to sell
\nownership in some 35 companies this year. The companies operate
\nin various sectors including hotel, property, manufacturing, and
\nfinance.<\/p>\n
IBRA also plans to form a joint venture with several investors
\nincluding international banks to help the agency restructure the
\nmassive amount of the NPLs. The agency will soon launch a tender
\nto realize the plan.<\/p>\n
IBRA deputy chairman Irwan Siregar said last week that in the
\nfirst stage, the agency expected to be able to sell around Rp 16
\ntrillion worth of restructured NPLs this year.<\/p>\n
In addition to the cash target, IBRA must restructure around
\nRp 10 trillion worth of NPLs this year to be exchanged with
\ngovernment bonds held by recapitalized banks. (rei)<\/p>",
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