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)