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)