House approves Merpati lifesaving plan

House approves Merpati lifesaving plan

Rendi A. Witular, Jakarta

The House of Representatives has given approval to the
government to restructure troubled state-owned airline PT Merpati
Nusantara Airlines in a bid to help prevent the country's second
largest air carrier from collapsing.

The restructuring program consists of three parts; debt
restructuring, a strategic sale to foreign or local investors,
and an initial public offering (IPO).

The House, however, has decided to postpone the divestment
program for state-owned Bank Negara Indonesia (BNI), saying it
was not crucial at the moment. The decision on what to do next
will be left to the incoming House and the government.

During a hearing between the government and the House finance
commission on Monday, commission chairman Emir Moeis said that
the Ministry of Finance would have to first approve Merpati's
business plan before the restructuring programs could be carried
out.

"Merpati cannot be restructured unless its business plan is
approved by the Ministry of Finance," said Emir during the
hearing, which was attended by Minister of Finance Boediono and
State Minister of State Enterprises Laksamana Sukardi.

The House said that Merpati's management should first complete
the conversion of the company's debt to the government into
equity (debt restructuring), saying that this was the most
feasible option for the time being.

Darmin Nasution, director general of financial institutions at
the Ministry of Finance, said the business plan was needed to
ensure that the conversion of Merpati's debt would not cause
losses to the state as a result of reckless business operations.

Merpati has Rp 1.3 trillion (US$139.93 million) in debt, and
assets amounting to about Rp 775 billion. The airline's major
creditors are the government (Rp 225 billion), Bank Mandiri (Rp
230 billion) and national flag carrier Garuda Indonesia (Rp 246
billion).

The government plans to sell around a 49 percent stake in
Merpati to strategic investors later this year (or up to a 51
percent stake if the buyers are local investors).

Merpati needs fresh capital to help restore its equity to
positive territory, and expand its business amid tough
competition in the airline industry. This would eventually boost
Merpati's value prior to a planned initial public offering in
2006.

"We have decided to immediately approve the restructuring as
part of an attempt to rescue the airline. But we will leave the
execution of the restructuring programs to the new government,"
said Emir.

State Minister of State Enterprises Laksamana Sukardi agreed
with Emir, saying that this would help the outgoing government
avoid giving rise to suspicions among the public regarding its
intentions.

"Morally, the incoming government will enjoy more legitimacy
in implementing the restructuring effort," Laksamana said.

Regarding the divestment plan for BNI, both the government and
the House said the plan was not urgent at the moment as BNI still
had sufficient capital and the government could still find ways
to plug the state budget deficit without selling shares in the
bank.

The government had initially planned to sell 30 percent of its
stake in BNI to the public via a secondary offering.