BII founder surrenders bank stake

The Jakarta Post, Jakarta

The founding shareholder of Bank Internasional Indonesia (BII) has surrendered its remaining 18 percent stake in the publicly listed bank to the Indonesian Bank Restructuring Agency (IBRA) as part of the repayment of its debts to the government, the agency said on Thursday.

"With the transfer of these shares, IBRA's ownership in BII increases from 57 percent to 75 percent ... ," the agency said in a statement, adding that the remaining 25 percent of the shares were held by the public.

The government had promised the International Monetary Fund that it would fully reduce the ownership of the BII founder, the Widjaja Family, and install an independent management team as part of the strategy to rehabilitate the ailing bank. It is hoped that this program will be completed in July.

BII was the financial arm of the Widjaja Family's Sinar Mas Group (SMG). The bank was badly hit by the 1997 financial crisis, forcing the government to bail out the bank in 1999 by injecting about Rp 66 trillion worth of recapitalization bonds. In return the government, via IBRA, obtained a 57 percent ownership in the bank and took over the bank's non-performing loans (NPLs).

But despite the costly bailout, the bank's financial condition remained shaky, with a capital adequacy ratio (CAR) below the central bank's required 8 percent minimum.

BII's loans of about Rp 14.4 trillion (about US$1.4 billion) to affiliate companies under the Sinar Mas Group could potentially turn sour, as the group itself is in serious financial trouble due to huge debts to foreign creditors.

Sinar Mas is one the world's largest troubled borrowers, with its Singapore-based Asia Pulp and Paper (APP) unit struggling to restructure some $13.4 billion in debts. APP last year suspended its debt repayments.

To steer BII clear of a new round of trouble, the government decided to take over the bank's loans to Sinar Mas and inject additional bonds into the bank. In return, Sinar Mas must surrender assets to IBRA valued at 145 percent of the debts, plus offer a personal guarantee from the Widjaja Family.

The statement from IBRA said the 18 percent stake transferred to the agency would be used to reduce the group's debts to the government. But it remains unclear the value IBRA will put on the shares. With BII shares trading at Rp 25 on the Jakarta Stock Exchange, the 18 percent stake is estimated to be worth about $50 million.

BII, however, has other problems which are putting pressure on its CAR, which is a ratio between a bank's capital and risk- weighted assets, including lending.

First, the government has declined to guarantee its interbank loans worth Rp 1.1 trillion. BII could not collect the loans because the related banks had been closed down. The government is meant to cover the obligations of closed banks under the blanket guarantee scheme, but IBRA ruled that the interbank loans were ineligible for the guarantee scheme.

Second, BII has deferred taxes amounting to Rp 900 billion, which according to a Bank Indonesia ruling cannot be treated as capital.

To resolve these two problems, BII will have to launch a rights issue. Based on an initial estimate, the size of the rights issue will be about Rp 3.9 trillion. The government, which is acting as a standby buyer, will use recycled bonds to exercise the rights.

Recycled bonds are government bonds which have been redeemed from recapitalized banks.

IBRA also has said it aims to divest the government's ownership in BII later this year as part of an asset sale program agreed to with the IMF.