Bad debtors may benefit from IBRA loan auction
Dadan Wijaksana, The Jakarta Post, Jakarta
As the Indonesian Bank Restructuring Agency (IBRA) opened on Wednesday the bidding for its ambitious sale of some Rp 145 trillion (US$16 billion) worth of non-performing bank loans, taxpayers may face a bitter reality that most of the loan assets could be retaken by their old owners at huge discounts off of face value.
Sofjan Wanandi, chairman of the National Economic Recovery Committee (KPEN), criticized IBRA for the lack of commitment in preventing the old debtors from repurchasing the loans.
"The relatively short period provided for a due diligence process on such a huge amount of assets would only make it easier for old owners (original debtors) to buy them back at lucrative discounts," Sofjan told The Jakarta Post recently.
IBRA took over the bad loans from ailing banks and closed the banks during the late 1990s financial crisis. The agency is mandated to restructure the loans and sell them to raise cash to help ease the burden of the government which has some $60 billion in domestic debt as a result of the costly bank bailout program. Taxpayers will have to cover these costs.
Although under the law the original debtors are not allowed to repurchase the loans, IBRA itself has admitted that it would be hard to really prevent them from doing so as they could easily use proxy buyers.
"We're not cops. It's the police who are supposed to do investigations, not us," Mohammad Syahrial, IBRA deputy chairman for the Assets Management Credits (AMC), said when asked whether the agency would conduct an investigation to avoid old debtors from repurchasing the loans.
Citibank economist Anton Gunawan also said that it would be an uphill task to identify old debtors: "It's difficult (for the original debtors) to be traced."
When the country's financial system crashed in 1997, most of the country's indebted business groups, rather than repaying their huge debts, were instead widely believed to have transferred huge amounts of the bank's money overseas to private accounts.
Now, under the loan asset sale program, they could be tempted to buy back those loans from the government at huge discounts.
IBRA has said it is expecting the loans to sell for about 20 percent to 30 percent of their face value. Investors are only willing to buy the debt at a large discount due to huge risks involved in buying financial assets here, including a weak bankruptcy law, which makes it hard to force debtors to repay loans.
The loan assets are divided into two groups with assets worth between Rp 5 billion and Rp 50 billion categorized as commercial debts, while those worth more than Rp 50 billion grouped into corporate ones.
IBRA said that more than 200 local and foreign investors have registered to bid for the loan assets, which involve 2,500 credit portfolios consisting of both restructured and unrestructured loans.
The agency said that as of Wednesday's deadline, 203 or 82 percent of 248 investors who had signed a letter of interest had registered to bid. Of those who have registered, 91 are foreign investors.
IBRA will select the winning bidders on July 24.
IBRA Chairman Syafruddin Temenggung said the agency would cancel the sale and repackage the loans if bids were too low.
The International Monetary Fund has previously asked IBRA to sell the loans in packages instead of selling them individually. But IBRA argued that no local bidders could afford paying for the loans if they were sold as a package.
The launching of the massive sales program is part of the agency's efforts to accelerate its asset sale and debt restructuring program.
Aside from raising cash from the sale, the program is also designed to allow the government to redeem its massive recapitalization bonds held by banks.
Under the plan, the recapitalized banks will be allowed to use the bonds to pay for the loan assets.
IBRA is targeted to recoup at least Rp 7.5 trillion worth of bonds this year. Retiring the bonds will help ease the burden of the state budget in covering the interest of the bonds.