BCA, Bank Niaga divestments delayed

JAKARTA (JP): The government agreed with the House of Representatives on Thursday to delay the key divestment program involving the publicly listed Bank Central Asia (BCA) and Bank Niaga.

Chairman of the Indonesian Bank Restructuring Agency (IBRA) Cacuk Sudarijanto said that delaying the divestment of the two banks would allow the government to obtain "optimum" proceeds.

"We agree to delay the divestment," Cacuk told the House Commission IX on banking and state budgeting in a consultation session which was also attended by Minister of Finance Prijadi Praptosuhardjo.

IBRA is a unit under the finance ministry.

The government promised the International Monetary Fund last month that it would divest a majority of its ownership of BCA and Bank Niaga by the end of this year at the latest, as stated in the letter of intent (LoI).

Prijadi told the legislators that the government had two options: to divest the two banks immediately but at a risk of raising less than optimum proceeds or to delay the divestment with the hope of getting a better deal once the banks' performance continued to improve.

"We think the price will be better next year ... It's been forecasted that BCA's profit will continue to increase," Prijadi said.

He explained that the IMF had been pressuring the government to immediately sell the assets under IBRA, including BCA and Niaga, to help revive investor confidence in the economy and to raise revenue for the state budget.

The IMF feared that a further delay could affect the selling price.

"We have different assumptions (than the IMF)," he said.

Prijadi said that BCA was one of the country's best banks with a strong network and a sophisticated IT system.

Most legislators supported the delay of the BCA and Bank Niaga divestment program.

"We don't agree that the country's best assets should be sold quickly at a low price," said Theo Teoemion, a legislator of the Indonesian Democratic Party of Struggle (PDIP), the largest faction of the House.

He said that delaying the divestment until the country's macroeconomic and political situation improved made sense.

"The government wants political support from us to make the delay. We will give it," added another PDIP legislator Didi Supriyanto.

The BCA and Bank Niaga divestment program is one of the key programs set in the LoI. A delay in any key program could put the country at risk of sanctions from the IMF, including a delay in the next disbursement of the Fund's loan.

The IMF is scheduled to send a review team to Jakarta at the end of this month to assess the country's economic reform program outlined in the LoI.

IBRA nationalized BCA and Bank Niaga last year in a bid to save the banks from bankruptcy caused by the heavy blows suffered during the financial crisis.

IBRA sold some 22.5 percent of BCA through an initial public offering last May, raising some Rp 927 billion in cash, which was contributed to help finance the deficit in the current state budget.

The agency now owns 70.3 percent of BCA, while the remaining 7.2 percent is held by the Salim Group, the bank's founder.

The agency holds a 97.15 percent stake in Bank Niaga, and the remaining 2.85 percent is held by the public.

Legislators also urged the government not to allow the Salim Group to repurchase its stake in BCA on the grounds that the founder had sent the bank into trouble and forced the government to perform a costly bailout.

"We agree. Our policy is not to allow the founder to repurchase its stake in the bank. But you know that they are sophisticated and have many tricks," Prijadi said.

Cacuk added that it was nearly impossible for the government to prevent the founder from making a repurchase through the secondary market.

Legislators also called on the government to implement the divestment through a public offering method because it was more transparent.

They argued that a private placement mechanism was less transparent.

But Cacuk said that a private placement mechanism was preferred by strategic investors who could provide the government with a premium price.

The BCA and Bank Niaga divestment was also supposed to help finance the deficit in the current state budget. IBRA is targeted to raise some Rp 18.9 trillion but so far the agency had only contributed around Rp 12 trillion to the budget.

But Cacuk was confident that the agency could meet its target in the remaining three months of the year.

"We'll expedite our debt restructuring program," he said.

IBRA controls various banking assets worth hundreds of trillion rupiah. The agency also manages some Rp 250 trillion in bank non-performing loans (NPLs). IBRA is mandated to restructure and recover the NPLs.

In 2001, the agency is targeted to raise around Rp 27 trillion in cash.(rei)