Bank Mandiri wants indemnity for BII acquisition

Bank Mandiri wants indemnity for BII acquisition

JAKARTA (JP): State Bank Mandiri said it was asking the
government for indemnity to protect the bank against potential
losses, such as from bad loans, arising after the acquisition of
PT Bank Internasional Indonesia (BII).

Bank Mandiri chief financial officer K. Keat Lee said the
indemnity would cover potential losses that were not detected
during the due diligence on BII.

"We have raised the issue of representative warranties and
indemnities. That is something we need to sort through before we
close a deal," Lee told The Jakarta Post on Friday.

He said Bank Mandiri was in negotiation with the government
for the acquisition of BII, including the indeminity.

As BII is already 56.7 percent owned by the government, the
negotiation was more an internal talk of the government, he said.

"But we want it to be as commercial as possible," Lee said.

Bank Mandiri plans to acquire BII, in what many believe is a
government initiative to save the latter from liquidation.

BII's non-performing loans are almost certain to become
unmanageable, due to a debt moratorium worth US$1 billion by one
of its debtors.

Under the acquisition plan, BII will transfer the bad loans to
the government, and then become a subsidiary of Bank Mandiri.

To this end, Bank Mandiri is conducting a due diligence on BII
that it hopes to complete in two months time.

"What is existing on BII's balance sheet may not be properly
classified," Lee said.

He did not rule out the possibility of the due diligence
discovering new bad loans.

BII is a unit of the financially troubled Sinar Mas Group,
whose subsidiary, the Singapore-based Asia Pulp and Paper (APP),
has imposed a payment standstill on debts worth some $13 billion.

More than half of BII's credit portfolio has exposure in the
Sinar Mas Group, that sums up to about $1.2 billion.

The government has agreed to replace the Sinar Mas bad loans
with government bonds, and restructure loans from the Indonesian
Bank Restructuring Agency (IBRA).

A two months due diligence, however, may not be enough to
unravel the web of loans channeled to the various units of the
Sinar Mas Group.

Bank Mandiri's request for indemnity may also prove to come in
handy, as reports surfaced that BII faces legal charges worth
Rp 482.46 billion (about $43.46 million) in penalty.

Copies of court documents, dated Dec. 26, 2000 and made
available to the Post, showed the Central Jakarta Commercial
Court ordering BII pay out the Rp 482.46 billion in penalty to a
local mining company.

The legal dispute centers on charges that BII has foiled an
investment deal of the local coal mining company, PT Bentala Coal
Mining.

Last year, BII filed for bankruptcy against several companies
and individuals who had agreed to become guarantors for loans
being sought by the mining company.

The bankruptcy case, which was filed while Bentala was
negotiating with its creditors, prompted the creditors to refuse
signing a loan agreement, fearing their loans would have no
guarantors, according to the mining company.

Even though BII later lost the bankruptcy case, the creditors
still refused to sign the loan agreement.

Bentala said the failed investment led to losses of Rp 977.06
billion and $50,000.

In seeking compensation, Bentala brought BII to court,
reasoning the bank had, at that time, no authority to file a
bankruptcy case.

BII, which had then been taken over by IBRA, should have
surrendered the case to the agency, Bentala's lawyer Hendra Roza
Putra explained.

He added he had informed the government and Bank Mandiri of
the case, knowing that Bank Mandiri planed to acquire BII.

BII had appealed the case at the higher court, but no verdict
had been issued so far, according to the bank's lawyer Benny
Harman.

Thus far, BII's officials have failed to respond to interview
requests.

Lee declined to comment on the case, saying he preferred to
wait for the results from the due diligence process.(bkm)