20% of bad debts 'cannot be restructured'

JAKARTA (JP): Deputy chairman of the Indonesian Bank Restructuring Agency (IBRA) Eko S. Budianto projected on Thursday that some 20 percent, or Rp 46 trillion of the Rp 230 trillion (US$32.86 billion) of nonperforming bank loans (NPLs) could not be restructured.

He said the agency would seize assets that backed the bad loans for liquidation.

"My estimate is that 20 percent (of the Rp 230 trillion NPLs assets) will be seized," he said after a ceremony on the appointment of the agency's 29 bailiffs.

Eko said some of the NPLs might also lack eligibility for restructuring because the indebted companies no longer had business prospects, or the companies had too heavy a debt burden.

Eko had earlier predicted that out of the 1,689 debtors owing approximately Rp 155 trillion in NPLs, only some 60 percent were eligible for restructuring.

He said IBRA had been empowered by a special government regulation to foreclose on debtors' assets, which are also claimed by other creditors.

IBRA is assigned to recover a massive amount of NPLs plaguing major domestic banks, either through restructuring programs or asset liquidations.

Recovering the loans is essential to minimize the budgetary cost of the costly bank restructuring and recapitalization program. International Monetary Fund Asia Pacific director Hubert Neiss estimated the NPLs could be approximately 40 percent of the gross domestic product.

The agency currently controls over Rp 172 trillion in NPLs. including those transferred from 10 closed down banks, two nationalized banks, seven state banks and seven banks which have signed recapitalization agreements with the government.

IBRA is expected to eventually control over Rp 230 trillion in NPLs once the 38 banks closed in March, seven nationalized banks, and two other banks yet to sign recapitalization agreements with the government transfer their bad loans.

IBRA has experienced difficulties restructuring the loans, because a substantial amount of the NPLs are owed by companies belonging to well-connected businessmen, who have strongly resisted cooperating with the agency.

However there are signs the debtors are starting to be more cooperative, particularly the 200 largest debtors.

On Thursday, the agency announced that some 173 indebted companies had signed a nonbinding letter of commitment to repay the loans. The debtors agreed to be transparent about their financial and business conditions to allow IBRA to design restructuring measures.

Organizations signing the letter included companies belonging to the family of former president Soeharto and associates such as Mohamad Bob Hasan. Their companies are Humpuss business units, PT Timor Putra Nasional, PT Kalimanis Plywood Industry, PT Kiani Kertas, PT Kiani Lestari, PT Asriland, PT Bukit Jonggo Asri, PT Satelindo and PT Bimantara Citra.

Eko expected IBRA would be able to restructure their debts either through debt to equity swaps, debt to asset swaps or by debt maturity extensions.

IBRA has promised to make a final decision on whether to restructure the debts or take litigation measures against debtors by the end of August.

Eko said debtors which did not sign the letter of commitment might have restructured their loans, repaid their debts or been declared bankrupt.

Separately, IBRA public relations officer Franklin Richard said airline firm PT Sempati Air and financial companies PT Indovac Finance and PT Pacific International Finance had been declared bankrupt.

"We have just been informed, and we will verify this new information," he said.

Sempati airline, owned by Hutomo Mandala Putra, the youngest son of Soeharto, owes IBRA some Rp 218.5 billion.

Franklin said PT Risjadson had started to repay its debts, while cellular telecommunications firm PT Asia Celluler had already restructured its Rp 354.64 billion debt. (rei)