Govt bonds in BCA to be replaced by IBRA assets
Dadan Wijaksana, The Jakarta Post, Jakarta
The government is close to finalizing a mechanism to replace its recapitalization bonds in Bank Central Asia (BCA) by restructured asset loans under the Indonesian Bank Restructuring Agency (IBRA), according to State Minister of State Enterprises Laksamana Sukardi.
"If I'm not mistaken, the Ministry of Finance is close to finishing its assessment on this bond-to-asset swap," Laksamana told reporters on Tuesday after a hearing with House of Representatives Commission IX on financial affairs.
He did not elaborate.
BCA, the country's largest retail bank, nationalized by the government in 1998, currently holds some Rp 58.2 trillion (around US$5.5 billion) worth of recap bonds.
The government issued more than Rp 400 trillion worth of bonds following the 1998 banking crisis to finance the recapitalization of several private and state banks. In return, the government, via IBRA, took over more than Rp 200 trillion worth of nonperforming loans from the banks.
The state budget covers the interest on the bonds.
The huge size of the bonds injected into BCA, and the burden on the state budget, became the latest controversy plaguing the government's plan to sell a 51 percent stake in the bank.
Minister of National Development Planning Kwik Kian Gie even suggested the government postpone the BCA tender process.
He has repeatedly questioned the logic of the government keeping the bank subsidized at almost Rp 7 trillion per year (the cost of the bond interest), even if it were owned by a new credible investor.
In comparison, the government is expected to raise Rp 5 trillion to Rp 6 trillion in cash by selling a majority stake in BCA.
Replacing the recap bonds by IBRA assets is crucial to help ease the burden on the state budget and avoid a fiscal disaster when a large chunk of the bonds is due to mature in 2004 and 2009.
There are currently four final bidders vying for the BCA stake. They are consortiums led by Standard Chartered Bank, Farallon, GKBI and Bank Mega. The last two are local groupings.
A report earlier said that Farallon, a U.S. investment firm, had agreed to the bond-to-asset swap plan.
Elsewhere, Laksamana said that many bankers, especially foreigners, were uncomfortable with the government bonds as they also carried a default risk.
He said that in the absence of a domestic bond secondary market the bond holders could only resell their bonds at a discount, which would eventually lower the bank's capital adequacy ratio (CAR), thereby forcing the owners to inject more capital.
CAR is the ratio between a bank's capital and risked-weighted assets, including loans.
"So in principle they all (the four bidders) want certainty, that's why they want to convert their bonds to assets."
However, the planned bond-to-asset swap has its risks too.
The National Banking Association (Perbanas) has said that the nonperforming loans (NPLs) under IBRA had a very low recovery rate.
According to association chairwoman Gunarni Soeworo, of the total NPLs under IBRA, no more than Rp 90 trillion could be recovered.