Recapitalization agreement signed<\/p>\n
JAKARTA (JP): The government will issue bonds in two weeks to
\nraise funds to recapitalize nine private banks, a process which
\nwill cost a total of some Rp 21.3 trillion (US$2.5 billion).<\/p>\n
Minister of Finance Bambang Subianto and Bank Indonesia
\nGovernor Sjahril Sabirin signed on Thursday the recapitalization
\nagreement with the owners and management of the nine banks.<\/p>\n
Bambang declined to give the terms or structure of the bonds
\nbecause they are currently being completed.<\/p>\n
\"The (bond) design is still in progress,\" he said at the
\nsigning ceremony.<\/p>\n
However, Bank Indonesia director Subarjo Joyosumarto, the
\narchitect of the government's bank recapitalization program, said
\nthe bonds would carry a 3 percent fixed interest rate and a
\nfloating rate according to the interest rate of the central
\nbank's three-month SBI promissory note.<\/p>\n
\"We are still in the process of structuring the bonds but the
\ninterest rate structure will likely be a combination of a fixed
\nrate and a market rate,\" he said after the signing ceremony.<\/p>\n
The recapitalization program is meant to boost the banks'
\ncapital adequacy ratio (CAR) to a minimum of 4 percent.<\/p>\n
CAR is the ratio between equity capital and risk-weighted
\nassets.<\/p>\n
Banks eligible to join the recapitalization program are those
\nwith CARs between minus 25 percent and less than 4 percent.<\/p>\n
The government will provide up to 80 percent of the required
\nrecapitalization funding by issuing bonds, while the remaining 20
\npercent of funding will be provided by the banks' owners in cash.<\/p>\n
Subarjo said the 3 percent fixed interest rate on the bonds
\nwould be applied until the banks' negative CARs were boosted to
\nzero, while the market interest rate would then be applied until
\nthe CAR levels reached 4 percent.<\/p>\n
When asked to confirm the fixed interest rate, Subarjo said:
\n\"Yes, it's only 3 percent.\"<\/p>\n
According to an official at the Indonesian Bank Restructuring
\nAgency, however, the fixed rate would be 3 percent above the
\nyear-on-year consumer price index.<\/p>\n
The bonds' floating interest rate will be much higher than the
\ngovernment's initial interest rate target of below 20 percent.<\/p>\n
The interest rate of the central bank's three-month SBI
\npromissory note was 35.59 percent at Wednesday's weekly auction.<\/p>\n
\"We decided to lift the rate because a 20 percent interest
\nrate would not be attractive for investors,\" Subarjo said.<\/p>\n
Subarjo also said the signing of the recapitalization
\nagreement would pave the way for foreign investors to participate
\nin the bank recapitalization program.<\/p>\n
\"There are many foreign investors who are shopping around.
\nThey told me that they would only enter once everything is clear
\nand the recapitalization agreement had been signed,\" he said.<\/p>\n
He said foreign companies, including GE Capital, Standard
\nChartered and Rabo Bank, were among those which had expressed
\ninterest in investing in the nine banks in the recapitalization
\nprogram.<\/p>\n
He said the owners of the nine private banks would inject
\ntheir 20 percent of recapitalization funding in one week, while
\nthe government would issue the bonds in two weeks.<\/p>\n
Subarjo said the nine private banks would need some Rp 21.3
\ntrillion in recapitalization funding according to December 1998
\ndue diligence audits.<\/p>\n
He said any additional funding requirements resulting from the
\npossible further deterioration of the banks' capital between
\nJanuary and April due to negative interest rate spread would be
\nshared by the banks' owners and the government. The government
\nwould provide 80 percent of any possible additional required
\nfunding while the banks' owners would provide 20 percent.<\/p>\n
The nine banks in the recapitalization program are publicly
\nlisted Bank Internasional Indonesia, Bank Lippo, Bank Niaga, Bank
\nBali and Bank Universal, and non-listed Bank Bukopin, Bank Artha
\nMedia, Bank Prima Express and Bank Patriot.<\/p>\n
Subarjo said the listed banks would launch rights issues to
\nraise funds for recapitalization following the signing of the
\nrecapitalization agreement.<\/p>\n
Included in the agreement are stipulations on investment and
\nperformance.<\/p>\n
The first relates to a funding agreement in which the
\ngovernment agrees to provide up to 80 percent of the required
\nrecapitalization funding, with the remainder to be provided by
\nthe banks in cash.<\/p>\n
The second agreement relates to various targets the banks must
\nmeet, including the requirement to eventually reach a minimum CAR
\nlevel of 8 percent, to lower intergroup lending to the legal
\nlimit within a year and to resolve bad assets within three years.<\/p>\n
Indonesian banks have been battered by the current economic
\ncrisis, prompting the government to close 61 private banks since
\nNovember 1997 in a bid to clean up and restructure the industry,
\nwhich is seen as key to economic recovery. (rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/recapitalization-agreement-signed-1447893297",
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