Sat, 05 Apr 2003

Bank Lippo recapitalization contract questioned

Zakki Hakim, The Jakarta Post, Jakarta

A May 2000 agreement that allows Bank Lippo's former owner to repurchase shares in the bank from the Indonesian Bank Restructuring Agency (IBRA) has the potential to cause the state massive losses, a legal expert said.

Law expert Sutan Remy Sjahdeini told The Jakarta Post on Thursday that all signatories to the deal could be charged for corruption according to the Anticorruption Law.

The central bank is currently investigating an alleged scam committed by Bank Lippo management. Previous reports alleged that the bank's management had made maneuvers that were against the law in a bid to help the former owner regain control of the bank for a very low price at the expense of the state.

Remy was referring to an amendment of the Investment and Performance Agreement (IMPA), which is a contract between IBRA and publicly listed Bank Lippo, when the government injected some Rp 6 trillion (about US$ 675 million) worth of bonds in 1999 to recapitalize the bank.

Under the second amendment of the IMPA, the former owner of the bank is obliged to purchase IBRA's shares in the bank upon the agency's request. Within four years after the amendment was signed, the total value of shares to be purchased amount to Rp 300 billion.

But Remy said that the amended contract did not specify the price of the shares.

This apparently tempted the bank's former owner to attempt to make the market price of the shares decrease in order to regain control of the bank at a very low price, he added.

"This would cause the state to suffer financial losses," he said.

IBRA, which represents the government, now controls a 59 percent stake in Bank Lippo as a result of the government privatization program.

Remy urged the agency to explain to the public why it had agreed to the amended version of the IMPA.

But IBRA spokesman Rohan Hafas rejected the charges, saying that IBRA would not request Bank Lippo's former owner to exercise the put option policy if the price was not right.

"Yes, the former owners may buy back Lippo shares but only if the price is right, so there won't be any losses to the state," he told the Post.