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)