BRI to go ahead with bond issue despite scandal

BRI to go ahead with bond issue despite scandal

Rendi A. Witular, The Jakarta Post, Jakarta

Despite the uproar over a recent lending fraud, Bank Rakyat
Indonesia (BRI) said it will go ahead with a plan to issue Rp 500
billion (US$58.8 million) in bonds next week, as investors still
had full confidence in the state-owned bank.

"We have to leave it in the hands of the market. We will stick
to the bond issue schedule... There will be no postponement,"
said BRI president Rudjito on Monday after a hearing with the
House of Representatives Commission IX for financial affairs.

BRI finance director I Wayan Alit Antara backed Rudjito's
statement, and said the fraud case would not hurt investors'
sentiments toward BRI, because the financial performance of the
publicly listed bank was strong.

"The fraud will not wreck our plan. On Dec. 10, the bank will
make a presentation to investors and the press," he said.

The subordinated bonds, expected to carry an indicative coupon
rate of 13 percent, will have a maturing period of five years,
which is extendible to 10 years.

The underwriters of the issue are PT Trimegah Sekuritas, PT
Danareksa Securities and PT Andalan Artha Advisindo Sekuritas.

BRI, the country's fourth largest bank in terms of assets,
said the bonds were aimed at raising funds to further strengthen
the bank's capital adequacy ratio (CAR) to around 20 percent,
from the current 17.56 percent. The central bank will require
that commercial banks have a minimum CAR of 12 percent in the
near future. A higher CAR would give more room for the bank to
boost lending.

Meanwhile, M. Fendi Susiyanto, a banking analyst at BNI
Securities, said BRI management must assure investors that it was
taking serious steps to avoid similar fraud in the future.

However, he said demand for the bonds would be relatively
high, given the fact that BRI was expected to book strong profit
this year.

"BRI's performance is good, and investors will surely hold to
that. But psychologically, the fraud will overshadow the bank's
plan to issue the bonds," said Fendi.

BRI has estimated that its pre-tax profit would surge by 98
percent this year to Rp 2.9 trillion. By September, the bank's
pre-tax profit had increased by 104 percent to Rp 2.70 trillion.

The bank has been under fire with the recent revelation of a
Rp 294 billion lending fraud, in which three bank branches
approved loans to local companies supported by cash collateral
deposits. However, it turned out that the cash deposits did not
belong to those companies.

The Attorney General's Office (AGO) and the central bank are
still investigating the scandal.

House Commission IX is also planning to conduct an
investigative audit on the bank and ask the Supreme Audit Agency
(BPK) to find out whether BRI had complied with existing
procedural regulations.

"We want a complete and accurate report on what is going on.
We need the BPK to audit the compliance of BRI, because the AGO
and the police lack knowledge of banking and financial
transaction procedures," said House member Faisal Baasyir.

However, the plan to send in the audit agency is still being
discussed, and the Commission will make a decision on Wednesday.

Elsewhere, Rudjito said he saw no reason for him or the other
BRI directors to resign from their posts due to the scandal.

"We are not leaning toward that kind of action (resignation).
The most important thing is that we have informed our
shareholders of the fraud," he said without elaborating further.