Due diligence on IBRA loan assets starts
The Jakarta Post, Jakarta
The Indonesian Bank Restructuring Agency (IBRA) is set to open the bidding process on July 17 for its planned sale of Rp 150 trillion (US$17 billion)-worth of nonperforming loans (NPLs), with 53 investors so far having begun their due diligence inspections on the offered loans.
"So far, 53 investors have begun due diligence inspections on around Rp 80 trillion worth of loans," Mohammad Sjahrial, IBRA deputy chairman for Asset Management Credit (AMC), told reporters on Tuesday.
Of these, around three-quarters were local investors, including the country's major banks, with the remainder from overseas, he said.
As reported earlier, the agency is launching a massive sale of around 2,500 bad loan portfolios, to be completed on Aug. 22, as part of efforts to accelerate its asset sale program, which has been criticized for being too slow.
IBRA took over the NPLs from troubled banks in the late 1990s.
However, with the huge number of credit portfolios on offer in such a short time, suspicions are rife that the original debtors, who have the advantage of knowing the nature of those assets better than others, would buy back the assets at bargain prices.
This would create trouble for other investors interested in the offered loans as they would not have enough time to carry out proper due diligence inspections on both the loans and collateral.
Although the debtors themselves are legally barred from buying the debt directly, it would be hard to track down if the original debtors used third parties to do this.
At present, IBRA only requires investors to sign a letter confirming no conflict of interest, to prevent old debtors from buying back the loans.
The sale of assets, made up of commercial and corporate debts, will use a combination of direct selling and a tender mechanism.
Commercial debts are categorized as those worth between Rp 5 billion to Rp 50 billion, while those higher than Rp 50 billion will be grouped into corporate debts.
Before coming up with this plan, the asset restructuring has been difficult and time-consuming. And this massive sell-off is expected to be a breakthrough for the agency.
IBRA expects about a 24 percent to 30 percent return on the face value of the loans.
The proceeds are expected to contribute the lion's share of IBRA's total revenue target destined for government coffers.
For this year, the state budget has targeted IBRA to be able to raise more than Rp 35 trillion in cash, to be used partly to help plug the gaping state budget deficit, which is projected at 2.5 percent of gross domestic product (GDP).
IBRA, at the request of the International Monetary Fund, was established in 1998 to restructure bad debts it took over from local banks hit by the financial crisis in 1997 and 1998.
It controls over Rp 600 trillion worth of assets transferred from indebted bank owners, closed-down banks and recapitalized banks, and is mandated to restructure and sell those assets to raise cash.