Government's capital participation in banks

Government's capital participation in banks

From Bisnis Indonesia

Disregarding the pros and cons surrounding the premature
issuance of Government Regulation No. 4/1999, the enforcement of
this government regulation must be postponed.

We have studied the extent of the protection, security and
guarantee related to the government's capital participation in
commercial banks subjected to recapitalization.

As it is generally known, the government's capital
participation has become a trend. In connection with the
practice, attention must first be paid to the different values
attached to the shares of a bank as stated in the bank's
corporate statute. So we know that there are shares of A series,
B series, C series and so forth (known previously as priority
shares and ordinary shares).

A series shares may be considered as the shares of the
founders or priority shares and in this respect it is clear who
holds/owns them. Other shares are ordinary shares and these
shares are of different types depending on their value. Obviously
there is a basic difference between, say two types of ordinary
shares of different values if one share has a nominal value of Rp
500 while the other only Rp 10.

Regarding the different values attached to ordinary shares, a
bank owner usually reasons that this difference in value allows a
bank to easily find additional capital because it will simply
have to issue the shares still in the company's custody. This
reason is really bull!

Consider this: the capital is raised by a high percentage and
the nominal value of the shares remains the same as that of the
initial shares. As for the new shares, let's say only one-third
will be paid while the remaining two-thirds can simply be taken
out without having to alter the corporate statute.

Therefore, in connection with the government's capital
participation, what needs to be done should be a detailed
examination of the content of the corporate statute to find out
whether all shares are vested with the same rights and
obligations. It is logically impossible for a share of a nominal
value of Rp 10 to be the same as a share of a nominal value of Rp
500. In this respect there must be a certain clause in the
statute that distinguishes between these two kinds of shares.

If the assumption above is correct, there are therefore
parties disadvantaged by this situation. Besides, the statute
itself is legally defective. In this regard, it is strange that
relevant authorities such as the Capital Market Supervisory Board
and the Jakarta Stock Exchange can be taken off guard.

One action of utmost importance is to examine the extent the
preemptive right inherent shares that the government is supposed
to control. This measure would allow the government to determine
the business activities of the bank in question, for example the
voting rights in the general meeting of shareholders, the right
to elect and discharge members of the board of executive
directors and the board of commissioners, the right to determine
the authority of the board of executive directors and, of course,
the policy and business plan that the bank in question is
supposed to pursue and implement. Let's see to it that the
government's capital participation should not be something only
on paper.

Many banks have been embroiled in solvency-related problems
because the owners usually extended loans only to their
affiliates and also because they did things which flouted
prevailing banking provisions and regulations.

TAUFIK KARMADI

Jakarta