FSPC approves BII rights issue plan

The Jakarta Post, Jakarta

The Financial Sector Policy Committee (FSPC) approved late on Monday the proposal of the Indonesian Bank Restructuring Agency (IBRA) to increase the size of the bank's rights issue plan to Rp 4.33 trillion (US$466 million) from the original estimate of around Rp 3.9 trillion.

IBRA Chairman Syafruddin Temenggung said that this was needed to boost the ailing bank's capital adequacy ratio (CAR) to between 8 and 12 percent.

CAR measures a bank's capital compared to its risk weighted assets, including loans. The higher the CAR, the better the condition that the bank is in.

Syafruddin was speaking to reporters following a meeting with FSPC, which groups senior economic ministers and has the final say on the country's major bank and corporate restructuring programs.

He added that prior to the issuance of new shares, the publicly listed bank would also have to implement a "reverse stock" measure to increase the stock's price to a minimum level of Rp 100 per share in order to meet the requirement of the Capital Market Supervisory Agency (Bapepam).

The Bapepam ruling stipulates that a publicly listed company can only launch a rights issue if its share price is no less than Rp 100 per share. BII's share price was at Rp 20 per share on Monday.

However, the plan would still have to wait for approval from the House of Representatives. The two are scheduled to meet later this month.

IBRA, which controls 75 percent of the bank, had argued that the plan is the best mechanism available to save BII.

Under the plan, the government would become a standby buyer for the new shares using recycled bonds to finance the purchase. Recycled bonds are government bonds which have been redeemed from recapitalized banks.

The government through IBRA has injected about Rp 21 trillion worth of bonds since it was nationalized in 1999. But after a couple of years, the bank's CAR dropped again, prompting IBRA to come up with the plan.