20% of bad debts 'cannot be restructured'

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)