Bad debtors may benefit from IBRA loan auction

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.