Government to offer controlling interest in scandal-ridden BNI

The Jakarta Post, Jakarta

The government will divest a 51 percent stake in scandal-hit Bank Negara Indonesia (BNI) via a strategic sale in the first semester after the completion of the bank's on-going restructuring process.

Previously, the government planned to sell a 30 percent stake in the bank through a secondary offering on the stock market.

But, Mahmuddin Yasin, the deputy assistant for privatization programs at the Office of the State Minister for State Enterprises, stated on Thursday that the government would sell instead a controlling stake in the bank to a strategic investor in bid to a secure a premium price.

"We are aiming for a strategic sale of up to 51 percent," Mahmuddin told reporters, adding that the setting of a premium price was common when selling a bank's majority stake as it also meant handing over control of the bank to the new investor.

He said BNI management had been given three months to conclude its restructuring efforts, which are aimed partly at restoring the bank's image following the recent disclosure of a Rp 1.7 trillion (US$202 million) lending fraud.

Mahmuddin added that the progress in the restructuring efforts would affect the movement of BNI's shares on the stock market, which would in turn affect the proceeds from the forthcoming sale.

"That (share price movement) will depend on the progress of the ongoing internal restructuring," he said.

BNI management had earlier said that the restructuring process would focus mainly on improving internal control mechanisms to avoid similar lending frauds in the future. Poor internal control was primarily blamed for the latest scandal, where a branch office was able to disburse export credits, which later turned out to be fictitious, repeatedly over a space of about one year.

As part of its restructuring efforts, BNI has hired consultancy firms and placed a banking expert on its board of commissioners.

According to Mahmuddin, however, aside from improving its controls, the government had also asked the bank to refocus its business.

"It not just about control, the bank has been asked to also improve its business plans as currently they are not focused," he added, referring to the bank's current lending policy, which sees it providing loans in almost equal measure to small and medium enterprises all the way up to large-scale corporate lending.

BNI, the country's second largest lender in terms of assets, is among a number of state-owned companies slated for sale this year in an effort to raise some Rp 5 trillion in privatization proceeds.

The government is relying on these proceeds to help cover the state budget deficit, which for this year is projected to come in at Rp 24.4 trillion, or 1.2 percent of the country's gross domestic product (GDP).

Besides the proceeds, the government also expects other benefits to accrue from the privatization program, which it is hoped will encourage state-owned enterprises -- notorious for their corrupt cultures, to increase their transparency, efficiency and professionalism.

Elsewhere, Mahmuddin said the government was hoping that all the companies slated for sale this year would be sold in the first semester.

This was because after the first semester investors would most likely apply a wait-and-see stance during the election period, he said.