Bank Mandiri gets Rp 103t in bonds for recapitalization

JAKARTA (JP): The government issued on Thursday Rp 103 trillion (about US$13.7 billion) worth of bonds to recapitalize state Bank Mandiri, the country's largest bank.

The Ministry of Finance said in a statement this amount represented the first tranche of recapitalization funds to be injected into the bank.

The ministry said the second and final recapitalization tranche would be issued in December, following the completion of a due diligence audit of the bank to determine the amount of this final tranche. The audit is expected to be finished sometime in November.

"It has been agreed that this (final) tranche will be based on a due diligence audit conducted by independent third-party auditors.

"Along with the issuance of the first tranche of bonds, the government has signed an interim investment and management performance agreement with the board of directors and board of commissioners of Bank Mandiri," the ministry said.

"This agreement contains various conditions which must be fulfilled over the next two months by the management of Bank Mandiri," it said, adding that a final management contract would be drawn up when the agreement on the final recapitalization tranche was signed.

Bank Mandiri was formed late in July last year from the merger of four ailing state banks: Bank Bumi Daya, Bank Ekspor Impor, Bank Pembangunan Indonesia and Bank Dagang Negara. These banks had a combined loss of Rp 117 trillion last year.

Based on an earlier due diligence audit, the government initially decided to inject Rp 137.8 trillion into Bank Mandiri to raise its capital adequacy ratio (CAR) to the government- established 4 percent minimum.

However, due to faltering economic conditions the sum required to raise the bank's CAR to 4 percent may have increased.

World Bank country director for Indonesia Mark Baird criticized the government on Thursday for the sluggish pace of recapitalization of state banks.

He urged the new government to accelerate the program, pointing out that state banks currently carried some 75 percent of the banking industry's liabilities.

Under an agreement with the International Monetary Fund, the government was to begin recapitalizing Bank Mandiri at the end of July.

Economists also have demanded the government be more transparent in recapitalizing state banks.

"Why is the cost of recapitalizing state banks so large? What are their business plans? We demand the government be transparent about this," noted economist Sri Mulyani said.

The government so far has provided limited information about the performances of the four state banks which were merged to form Bank Mandiri.

Bank Mandiri has passed some Rp 76 trillion in bad loans from the four state banks to the Indonesian Bank Restructuring Agency. This figure represents around 50 percent of the banks' total loans.

Bank Mandiri president Robby Djohan said recently that some Rp 10 trillion to Rp 15 trillion of the bad debts were owed by the family and associates of former president Soeharto.

The bank is currently attempting to restructure some Rp 51 trillion in problem loans, and hopes to complete the restructuring of some 28 percent of this total by the end of this year.

Robby said he planned to float Bank Mandiri shares on the stock market in 2001. He said this would be accomplished by offering up to 80 percent of the bank's shares in a bid to make the bank completely independent of the government and raise proceeds to help finance the government's bank restructuring program, which is estimated to cost Rp 550 trillion, or about 50 percent of gross domestic product for 1999.

Bank Mandiri is expected to control 30 percent of the domestic market share. (rei)