IBRA may be forced into fire sale if cash target raised

JAKARTA (JP): The Indonesian Bank Restructuring Agency (IBRA) may be compelled to sell its assets at a huge discount if the cash-strapped government raises the agency's 2001 cash target, the agency's chairman Edwin Gerungan said.

Edwin said late last week that even with the initial target of raising Rp 27 trillion (US$2.3 billion) in proceeds for this year, IBRA was already facing a lot of challenges.

"There are a lot of challenges, but we think we can (meet the Rp 27 trillion target)," he told reporters prior to a meeting with several members of the House of Representatives Commission IX on state budget and finance.

"Selling the assets is not easy ... it takes time," he said.

He added that one of the challenges was that the market had been forcing the agency to sell the assets at a huge discount.

IBRA, a unit under the finance ministry, controls various types of assets including bank non-performing loans (NPLs) and fixed assets worth more than Rp 600 trillion transferred from ailing banks and former bank owners in the aftermath of the 1997 financial crisis.

The agency, set up in 1998, is mandated to sell the assets until 2004 in a bid to raise cash to help finance the state budget deficit.

The government has targeted IBRA to raise around Rp 27 trillion in proceeds this year.

But as the current deficit could widen to around 6 percent of gross domestic product (GDP), from the initial projection of 3.7 percent of GDP, particularly due to the weakening rupiah and rising domestic interest rates sources said that the government was considering raising IBRA cash target.

Finance Minister Prijadi Praptosuhardjo is expected to propose to the House early next week a set of measures to resolve the deficit problem.

Edwin declined to comment on the new plan, but IBRA deputy chairman Felia Salim confirmed that the government was planning to raise the IBRA cash target for this year by another Rp 2 trillion. "But this is not a final figure," she said.

Experts have said that the current domestic political and legal uncertainties were creating difficulties for IBRA to sell the assets at a good price, particularly as the agency was also facing competition from similar agencies in neighboring countries with relatively stable political conditions.

They also said that the sharp fluctuation in the exchange rate of the rupiah against the U.S. dollar and the rising domestic interest rate would be a significant obstacle in restructuring the massive amount of NPLs held by IBRA. The agency must first restructure the NPLs before selling them to investors.

But selling the IBRA assets at a huge discount will surely anger House members, who have set a relatively high 70 percent recovery rate for the IBRA assets.

The recent snags in the sale of a number of palm oil plantations to Malaysia's Kumpulan Guthrie Bhd. illustrates IBRA's difficulties in pushing through the asset sale program.

Several legislators and farmers' associations had forced IBRA to review or cancel the deal with Guthrie citing national interest. However, after high level talks involving President Abdurrahman Wahid and Vice President Megawati Soekarnoputri the agency managed to close the $370 million transaction, IBRA's second largest deal so far after the $500 million sale of shares in publicly-listed PT Astra International in 1999 to Singapore's Cycle & Carriage.

IBRA is now planning another landmark deal to sell shares in the publicly-listed Bank Central Asia (BCA) and Bank Niaga. But the agency seems to be facing trouble from legislators particularly in the sale of 40 percent BCA shares because the House had demanded the sale be conducted both via public offering and strategic sale.

Sources at IBRA said that maximum proceeds could be obtained from strategic sales, but the amount of shares to be sold must be large enough, at least 40 percent, to make investors willing to pay a premium.

Edwin said that IBRA would conduct the sale of the BCA shares within the "corridor" set by the House. "The financial advisers will decide on which (sale) mechanisms would be conducted first," he said.

Most of the fixed assets under IBRA are those transferred from indebted former bank owners including the giant Salim Group (the former owner of BCA), tycoons Sjamsul Nursalim, Mohamad Bob Hasan, and Usman Admadjaja.

IBRA said in an advertorial last week that it planned to sell ownership in some 35 companies this year. The companies operate in various sectors including hotel, property, manufacturing, and finance.

IBRA also plans to form a joint venture with several investors including international banks to help the agency restructure the massive amount of the NPLs. The agency will soon launch a tender to realize the plan.

IBRA deputy chairman Irwan Siregar said last week that in the first stage, the agency expected to be able to sell around Rp 16 trillion worth of restructured NPLs this year.

In addition to the cash target, IBRA must restructure around Rp 10 trillion worth of NPLs this year to be exchanged with government bonds held by recapitalized banks. (rei)