IBRA may be forced into fire sale if cash target raised

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)