IBRA assumes Sinar Mas debt to save publicly listed BII

JAKARTA (JP): The Indonesian Bank Restructuring Agency (IBRA) has reached a deal with the Sinar Mas Group to settle about Rp 13.7 trillion (US$1.3 billion) of its debt to publicly listed Bank Internasional Indonesia (BII), a move seen as saving the bank from the risk of closure.

IBRA chairman Edwin Gerungan said on Monday that according to the deal, the Sinar Mas debt will be removed from BII's books so the bank's capital adequacy ratio (CAR) will increase from 6.8 percent (as of Sept. 30, 2000) to more than 10 percent.

"The important thing is that we must save the bank first," Edwin said at the House of Representatives.

He declined to provide details of the deal, saying this information would be made available in the next several days.

Domestic banks must have a minimum CAR level of 8 percent by the end of this year or be closed down by the government.

The share price of BII jumped 60 percent to Rp 40 at the close of trade at the Jakarta Stock Exchange following the news.

Investors had been shunning BII due to concerns over its financial condition. BII was one of two recapitalized banks (the other being publicly listed Bank Universal) with CARs below 8 percent.

Minister of Finance Prijadi Praptosuhardjo was quoted by Reuters as saying the government might issue bonds worth Rp 13.7 trillion to inject into BII's balance sheet to replace the loans transferred to IBRA.

A source close to the deal said the government would issue either bonds or provide a guarantee on the loans.

"A government guarantee or a bond issue is basically the same," the source said.

BII was founded by the Sinar Mas Group, but when the government recapitalized the bank in May 1999 following the Asian financial crisis the Sinar Mas Group lost its majority stake, which is now controlled by the government via IBRA.

The government has spent billions of dollars recapitalizing BII.

"We must protect our investment in BII," said Soebowo Musa, the head of IBRA's bank restructuring unit.

The Sinar Mas Group, the country's second largest conglomerate after the Salim Group, borrowed massively from BII prior to the 1997 financial crisis to finance its various projects.

An IBRA statement said the deal with the Sinar Mas Group was a follow-up to the Investment Management Performance Agreement signed on May 28, 1999.

According to reports, under this new deal the government will guarantee the Sinar Mas debt to BII, but in return the group must provide assets equal to 145 percent of the Rp 13.7 trillion debt.

But there are concerns that most of Sinar Mas' assets have plunged in value due to the country's economic and political problems. The group's pulp operations also have suffered from a steep fall in the price of pulp on the international market.

The Sinar Mas Group also is under pressure to sell its assets to repay overseas debts that mature this year.

The group's New York-listed Asia Pulp & Paper (APP) has about $10 billion debt, with some $2 billion coming due in 2001.

APP is facing pressure to sell its assets in Indonesia and China to repay the maturing debt.

Sinar Mas has plans to swap about $3 billion in APP debt for longer maturity debt, but has yet to obtain the approval of the U.S. Securities Exchange Commission.

The Sinar Mas Group's other main assets in the country include publicly listed pulp giant PT Indah Kiat Pulp & Paper and papermaker PT Tjiwi Kimia. (rei)