Analysts doubt divestment plan

Dadan Wijaksana, The Jakarta Post, Jakarta

Given the failed sale of Bank Niaga, the government will find it difficult to carry out its ambitious plan of selling three more banks this year, analysts said.

In view of the Bank Niaga case, in which the government failed to sell the bank by the initial June deadline, selling three more banks was a tough job for the government to complete, economist Raden Pardede said.

"It will be difficult for the government to conduct the bank sales this year," Raden, of the Danareksa Research Institute, told The Jakarta Post on Thursday.

Under the latest Letter of Intent (LoI) signed on Tuesday, the government promised the International Monetary Fund (IMF) that it would sell Bank Niaga as well as three other banks; Bank Mandiri, Bank Lippo and Bank Danamon, by the end of the year.

The LoI contains a set of economic reform programs agreed upon by the government and the IMF. Failure to comply with the program will lead to a halt in the disbursement of lending from the fund.

The government plans to launch the sale process of the majority stake of Bank Danamon next month with the sale expected to be completed by the end of the year, followed by the launch of the sale of a majority stake in Bank Lippo.

It is also committed to initiating the sale process of a 30 percent stake of Bank Mandiri, the country's largest bank in terms of assets, by the third quarter of the year.

Earlier, the government decided to cancel the sale of Bank Niaga through a strategic sales scheme due to low bidding prices from interested buyers.

The Indonesian Bank Restructuring Agency (IBRA) then extended the deadline to mid-September with the stake to be sold increasing to 71 percent from the previous 51 percent.

"I am pessimistic that the government can finalize all (the sales of four banks), now that we're entering the second semester of the year," Anton Gunawan, Citibank economist, told The Post.

Anton added investors would closely watch how the government would carry out the new sales process of Niaga, warning that more delays in the process could eventually disrupt the sales of other banks.

IBRA expects to sell a 20 percent stake of Niaga to the stock market by the end of the month, which will be followed by the offering of the other 51 percent to strategic investors. IBRA holds 97.17 percent of Niaga with the remainder held by the public.

Both Raden and Anton pointed out that the main problem that could hamper the selling of the banks would revolve around bidding prices.

"Just as in the Niaga case, there will be a significant difference between the valuation of the banks by the seller and the buyers," Raden said.

Anton concurred, "It's better for IBRA to set out a minimum price first, and then announce that if no bidders comply with that price then the sale process would be canceled".

Another factor that could threaten the plan would be the growing pressure from various quarters on the government to temporarily stop the banks' divestment process, especially those holding recapitalized bonds.

Such pressure will predictably come from State Minister of National Development Planning Kwik Kian Gie, who has gained strong support from some political leaders in his campaign against the selling of recapitalized banks. Kwik argued that selling those banks will only mean the government will have to "subsidize" future owners of the banks with its interest payments on bonds.