Bank Mandiri cancels plan to acquire ailing BII

Bank Mandiri cancels plan to acquire ailing BII

Tantri Yuliandini, The Jakarta Post, Jakarta

The government decided to drop earlier plans to merge state-
owned Bank Mandiri with publicly listed Bank Internasional
Indonesia (BII) citing improvement in the latter's financial
condition.

State Minister for State Enterprises Laksamana Sukardi said on
Tuesday that BII had been considered "healthy" after the
government injected billions of dollars worth of hedge bonds
earlier this month to replace bad loans owed by the bank's parent
Sinar Mas Group.

"Our final decision is to make BII a stand-alone bank," he
told a media conference.

He added that the new strategy was part of the government's
plan to gain optimum results from divesting ownership in BII
later on.

Laksamana's office oversees the Indonesian Bank Restructuring
Agency (IBRA), which controls majority ownership in BII after it
financed the bank's recapitalization program in the wake of the
1997 financial crisis.

The measure is part of the government's latest bank
restructuring program.

Laksamana said to ensure that BII could meet the central
bank's year-end minimum 8 percent capital adequacy ratio (CAR)
requirement, the government would inject another Rp 2 trillion to
Rp 3 trillion worth of bonds into the bank.

In a bid to save the ailing BII, the previous economics team
had planned to merge the bank with Bank Mandiri by asking the
latter to acquire the former.

But the new economics team instead injected US$1.05 billion
and Rp 5 trillion ($472.8 million) in hedge bonds to clean up the
bank's bad loans and transferred them to IBRA.

The loan transfer was made following concern that BII's CAR
would plunge on the high possibility of the Sinar Mas loans
turning bad.

Several analysts have earlier criticized the plan to force
Bank Mandiri to acquire BII arguing that the state-owned bank
itself was not in good condition.

Bank Mandiri had also recently expressed worries that the long
and difficult process of the planned acquisition of BII would
cause a delay in the state bank's initial public offering plan.

Bank Mandiri president E.C.W. Neloe said that his bank's top
priority was to launch an IPO, not acquiring BII.

Neloe could not be reach for comment on the government's
latest decision.