Bank Bali's rating affirmed

JAKARTA (JP): Rating agency Standard & Poor's affirmed on Wednesday the CCC public information rating on Bank Bali following the announcement by the Indonesian Bank Restructuring Agency (IBRA) that the bank would be recapitalized in the last quarter of the year.

The agency said in a statement that Bank Bali was in dire need of capital as evidenced by its reported negative equity of Rp 1.9 trillion (US$267 million) -- equivalent to a negative 21 percent of total assets -- as at March 31, 1999.

Under the recapitalization program, IBRA would inject Rp 4.3 trillion into the bank to raise its capital adequacy ratio (CAR) to 4 percent in compliance with Bank Indonesia's requirement.

The Rp 4.3 trillion fund will be raised through a rights issue with IBRA acting as underwriter.

"Despite this capital injection, the bank will remain severely capital constrained," the agency said.

"Standard & Poor's continues to view the targeted CAR of 4 percent to be very low given the inherent high risk of the operating environment in Indonesia," the agency added.

The agency also predicted the rights issue would receive cool response from the public.

"While the rights issue will be made to the public, it is likely that IBRA will ultimately take up a substantial share given the weakened financial condition of domestic investors," the agency said.

On the completion of the recapitalization, IBRA may sell up to 20 percent of its stake in Bank Bali to Standard Chartered Bank of Britain, the agency said.

Under the agreement between IBRA and Standard Chartered, the latter is allowed to purchase the balance of IBRA's 80 percent stake in Bank Bali after five years.

"While it is expected that the Standard Chartered Bank may initially acquire up to 20 percent ownership of the bank, but the final amount is uncertain and dependent on a number of external factors," the agency said.

It said the recapitalization program would provide Bank Bali with some flexibility to absorb anticipated losses, but "Standards & Poor's considers the target recapitalization to be a continuing constraining factor on the bank's operation in the future."

Bank Bali is currently being managed by a team comprising officials from Standard Chartered and IBRA. (jsk)