Wed, 03 Sep 2003

House urges govt to share IPO proceeds with BRI

Rendi A. Witular, The Jakarta Post, Jakarta

The House of Representatives approved on Tuesday the privatization of state-owned Bank Rakyat Indonesia through an initial public offering scheme (IPO), but urged the government to share the proceeds with the bank.

"The commission has approved the plan, but there are several conditions the government and the management of BRI should meet before going ahead with the IPO," newly appointed chairman of the House finance commission, Emir Muis, said on the sidelines of a hearing between the Commission and the bank.

He explained that one of the main conditions was that part of the proceeds from the IPO should be given to BRI to help halt the bank's declining capital adequacy ratio (CAR).

BRI's CAR has been declining over the past several months due to a lack of fresh capital. As of June this year, BRI's CAR stood at 12.36, down from 14.7 percent in March this year.

Emir said that the House would discuss with the government how the IPO proceeds could be managed so that BRI's CAR could be increased but at the same time the state could use the proceeds to plug the widening budget deficit.

"The bank wants 50 percent of the proceeds, but I don't think that is possible as the government will firmly stick to its plan (of taking most of the proceeds). I guess 20 percent is the most for the bank, and we will ask the government to approve this," Emir said.

In a written report delivered to the House two months ago, BRI revealed that without an increase in working capital from either the IPO or a bond issue, the bank's CAR would decline to around 11.5 percent in 2004.

The bank warned that it would be at risk of violating the central bank's "Basel Accord II" ruling, which obliges banks to have a minimum CAR of 12 percent by next year.

The report also revealed that if the bank were to get 50 percent of the proceeds from the IPO, this would increase the bank's CAR to 18 percent.

Analysts said that BRI, which specializes in channeling loans to micro, small and medium enterprises, could actually maintain its CAR above 12 percent without the proceeds of the IPO if it reduced its lending.

They said that if the government refused to give the entire proceeds to BRI, the bank would not be able to support the country's small and medium enterprises as mandated by the government.

However, last week, Minister of Finance Boediono said that the proceeds, which are predicted to reach between Rp 1.5 trillion (US$176 million) and Rp 2 trillion, would be entirely used to plug this year's state budget deficit.

The deficit is expected to reach about 2 percent of the country's gross domestic product (GDP), or Rp 35.1 trillion, higher than the target of Rp 34.4 trillion.

BRI's IPO will be launched in October or November this year as part of the government's 2003 privatization program. The government plans to sell 30 percent of the shares in BRI.