Govt bonds in BCA to be replaced by IBRA assets
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.