Government asks for discount for Lippo Bank's shares

Government asks for discount for Lippo Bank's shares

JAKARTA (JP): The government may back off from its initial
commitment to finance Lippo Bank's recapitalization program
unless it gets a better price deal, according to a source
familiar with the renegotiation process.

He said that the Indonesian Bank Restructuring Agency (IBRA)
was involved in renegotiations with Lippo Bank's owner to ask for
a discount of the bank's rights shares price of Rp 275 each in a
bid to save public money to be used for the recapitalization.

"But this last minute maneuvering could send the wrong signal
to the market," the source said.

Under the country's bank recapitalization program, the
government is to provide up to 80 percent of the funding
necessary, which in the case of the publicly-listed Lippo Bank
amounts to Rp 3.75 trillion.

IBRA corporate secretary Christovita Wiloto denied that the
government was renegotiating for a discount, but admitted that
the agency was in the process of launching a new policy on bank
recapitalization in a bid to defend the state's interest.

He said late on Friday that the new rulings were needed
because the bank recapitalization program would use a large
amount of public money.

"The new policy is intended to protect the state's interest
because the recapitalization program will use public money," he
told The Jakarta Post over the phone.

He said that the new rulings were not meant only for the Lippo
Bank, but also for other publicly-listed banks and non-listed
banks joining the recapitalization program.

"It just so happens that Lippo Bank is the most ready for the
recapitalization," he said.

"We need the new policy in order to plug all possible
loopholes," he added.

He refused to provide further details on the new policy as it
was still being formulated.

Lippo Bank announced late last year it would issue 17.1
billion rights shares to raise some Rp 4.7 trillion to finance
its recapitalization program. The shares, each with a par value
of Rp 10, would be sold at Rp 275 each.

The Riady Family, the bank's founder and majority stake owner,
has committed itself to taking 20 percent of the issue, and
expected the remainder to be taken up by the government.

In a decree issued in January, the government committed itself
to providing Rp 3.75 trillion or 80 percent of the
recapitalization funding needs.

The government, however, dropped the decree, which stipulated
that the Lippo Bank and 10 provincial development banks would be
the first batch of banks to be recapitalized, following public
protests over plans which seemed to lack transparency.

Lippo's rights issue plan, which offers shares with a par
value of Rp 10, the first rights issue scheme in the country's
capital history -- drew criticism from noted economist Kwik Kian
Gie.

In normal practice, the nominal (par) value of the rights
shares is the same as that of the already listed stocks.

Kwik said that Lippo Bank's rights shares are theoretically
too expensive because if they are sold at Rp 275, the ratio
between par value and the real price will be some 2,750 percent.

By comparison, he said, the bank's already listed stocks which
all have a par value of Rp 500 are traded only at Rp 600 or 120
percent.

"Because the government will be using the people's money,
people should not be reckless in making commitments. Please
think it over first," he said in his opinion article in Kompas
daily.

The government is launching a major bank recapitalization
program, in which it would provide up to 80 percent of the
recapitalization funding, to boost the capital adequacy ratio of
undercapitalized banks to the minimum 4 percent level by late
April.

The cost of the recapitalization program is estimated to be
between Rp 300 trillion and Rp 400 trillion.

The government is expected to make an announcement in the
middle of this month on which of the country's more than 200
commercial banks need recapitalization, and which have to be
closed down.

Public confidence in the government bank restructuring program
has been shaken hard following the recent decision to delay until
March 13 a bank liquidation measure initially scheduled on
February 27.

Some suspect that this was the work of lobbyists to prevent
certain banks from being closed down. The government earlier
said that it planned to close 40 commercial banks because they
could no longer be bailed out. (rei)