BII's rights issue fails to attract enough buyers

Dadan Wijaksana, The Jakarta Post, Jakarta

The government via the Indonesian Bank Restructuring Agency (IBRA) will have to finance a bulk of the cost to bailout the publicly-listed Bank Internasional Indonesia (BII) after the bank's rights issue failed to attract enough buyers.

Head of BII's management team Sigit Pramono said that public investors only pledged around Rp 68.8 billion (US$7.5 million) worth of news shares, or around 15 percent of the total new shares worth Rp 4.8 trillion offered via the rights issue.

He said that IBRA would purchase the remaining unsold new shares as it had agreed to become a standby buyer for the rights issue.

"As a consequence, shares of the minority shareholders would be diluted to around 8 percent from 25 percent while IBRA would hold the remaining shares," he told The Jakarta Post on Thursday.

Sigit said that the capital injection would boost the bank's capital adequacy ratio (CAR) to 25 percent from minus 47 percent.

The central bank has required all banks to have a minimum CAR level of 8 percent. CAR is the ratio between capital and risk- weighted assets.

IBRA previously controlled around 75 percent of the bank in return for a total Rp 21 trillion worth of recapitalization bonds it had injected since the bank was taken over in 1999.

To finance the purchase of the BII rights issue, the government will use recycled bonds. Recycled bonds are government bonds which have been redeemed from recapitalized banks.

IBRA has argued that the issue was seen as the best mechanism available to save the ailing BII, which recorded a net loss of around Rp 4 trillion as of last year.

Although BII has been under IBRA's care since 1999, the bank's financial condition failed to show improvement with its CAR continuing to slide.

Analysts said there were at least two reasons for the bank's CAR decline.

First, the government has declined to guarantee its interbank loans worth Rp 1.1 trillion, and BII could not collect the loans because the related banks had been closed down.

The government is meant to cover the obligation 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.

Elsewhere, Sigit said the bank would now focus on restructuring its non-performing loans (NPLs), amounting to Rp 5.2 trillion as of last year, or about 60 percent of its total loans, he added.

"With the planned debt restructuring, we aim to reach less than 10 percent of NPLs by the end of the year," Sigit said.