House agrees to sale of Bank Niaga and BCA shares

House agrees to sale of Bank Niaga and BCA shares

JAKARTA (JP): The House of Representatives commission IX on
state budget and finance finally agreed with the government on
Thursday to divest 40 percent of its ownership in Bank Central
Asia (BCA), and 51 percent in Bank Niaga sometime in the middle
of this year.

But the divestment of the government ownership in the publicly
listed BCA would be made gradually through a private placement
and secondary share offering.

Earlier on Thursday, the House banking committee gave its
approval for the sale plan, a crucial program that is expected to
help ease tension between the government and the International
Monetary Fund (IMF).

Legislators forced the government, represented by Finance
Minister Prijadi Praptosuhardjo, to implement the BCA sale via
the "double track" method in a bid to obtain optimum proceeds.

Legislator Ekky Syachruddin said at the meeting with the
government that a portion of the 40 percent BCA stake should be
sold to a reputable strategic investor, and to sell the remaining
portion via a secondary offering later after the value of BCA
appreciates with the entry of the strategic investor.

Most government officials were not opposed to the idea at
first, but at the end of the tense meeting, the Indonesian Bank
Restructuring Agency (IBRA) deputy chairman Jerry Ng insisted
that it might be difficult to implement the double track method
as a strategic investor would be less interested to invest if it
could not obtain a majority ownership or at least a 51 percent
stake in the bank.

Jerry declined to comment about his resignation plan to
reporters after the meeting. He had earlier tendered his
resignation to return to the banking community. Jerry is rumored
to be taking a key position at BCA.

The approval of the BCA and Bank Niaga sale program is one of
the country's key economic reforms promised to the IMF, which is
providing the current administration with some US$5 billion in
bailout loan.

The sale was supposed to be completed in December last year,
but it was delayed due to unfavorable market conditions at the
time. The delay had also prompted the IMF to delay the
disbursement of its next $400 million loan tranche late last
year. The IMF loan is very important to help revive investor
confidence in the economy and to obtain the support of other key
multilateral and bilateral lenders.

Prijadi said that the approval of the sale plan would help
improve government relations with the IMF, but he stopped short
of saying whether the IMF would finally disburse its crucial
loan.

"The approval is being awaited by the IMF and the World Bank.
I'm happy," Prijadi told legislators.

Asked by reporters whether the double track sale method for
BCA would upset the IMF, Prijadi said briefly: "No. Because it
(the mechanism) is not part of the Letter of Intent (LoI)."

Under the previous LoI, which basically contains various
economic reform programs promised by the government to the IMF,
the government must only sell the majority of its ownership in
BCA and Bank Niaga.

Legislators agreed the plan to divest 51 percent of government
ownership in the publicly listed Bank Niaga through a strategic
sale.

Meanwhile, Chairman of IBRA Edwin Gerungan said that the sale
of BCA and Bank Niaga could be completed within "four months" of
the approval being given.

"I think it will be completed in June or July," Edwin said.

The government nationalized BCA and Bank Niaga after they were
badly hit by the country's financial crisis that started in the
middle of 1997.

The government now owns more than a 97 percent stake in Bank
Niaga, and around 70 percent in BCA after the owners of the two
banks failed to pay their massive debts. The government sold
around 22.5 percent shares in the bank in May last year via an
initial public offering.

Legislators also insisted that the government must forbid the
ex-owner of BCA to purchase the government shares.

The House commission IX decided that the investor candidates
particularly for BCA must be reputable international banks or
financial institutions to help ensure that the former BCA owners
did not return to the bank.

The former owner of BCA is the Salim Group, once the country's
largest conglomerate. The group has a massive debt with the
government but it has surrendered ownership in more than 100
companies to repay the debt.

Proceeds from the sale of BCA and Bank Niaga would contribute
to the target of IBRA to raise around Rp 27 trillion in cash this
year to help finance the state budget deficit. (rei)