IBRA plans to buy back bonds at 100% value
IBRA plans to buy back bonds at 100% value
Dadan Wijaksana, The Jakarta Post, Jakarta
Indonesian Bank Restructuring Agency (IBRA) Chairman Syafruddin
Temenggung said the agency planned to repurchase the government's
bank recapitalization bonds at 100 percent of their face value,
in a bid to lure more investors into the bonds.
"We will purchase those bonds at 100 percent face value.
Because in order to ignite the bond market, we need to give
investors some sort of incentive," he said on Thursday.
There's been concern among investors that they would not be
able to make profit or could even suffer losses when investing in
the bonds if one day the agency redeemed them at a discount.
"Now, we will buy them at full price, regardless of what price
they were bought from the market."
Syafruddin said the agency and the Ministry of Finance were
currently finalizing the concept, and hoped it would be completed
sometime soon.
"We feel the need for officials from the Ministry of Finance
to get involved in this concept as they can inform us what kind
of bonds need to be redeemed soon," he added.
The new policy is crucial to help create a lively secondary
market for the recap bonds so that banks can sell the bonds to
raise fresh cash to be channeled to the real sector, which in
turn could push economic growth.
The government injected more than Rp 430 trillion (US$49
million) worth of bonds into several ailing banks in the late
1990s to help boost their capital condition.
But since the bonds are basically papers, the banks must be
able to sell the bonds to investors to raise cash so that the
banks can resume their intermediation role.
IBRA is also tasked with gradually redeeming the bonds to help
reduce the burden on the state budget and avoid a fiscal
disaster. The state budget covers the interest rate on the bonds.
The government has to allocate a huge sum of money each year
for interest payments, limiting the share that can be allocated
for development spending, which is badly needed to accelerate
economic growth.
This year, for example, the state budget has to allocate some
Rp 60 trillion for interest payments alone.
One of IBRA's strategies in redeeming the bonds is to exchange
them with bank loan assets under its management. It took over the
loan assets from ailing and closed-down banks in the late 1990s.
The agency launched the sale of some Rp 150 trillion worth of
bank loan assets earlier this month.
The agency has said that local banks are also being encouraged
to participate in the loan sale program, by allowing them to use
recap bonds as payments.
Mohammad Syahrial, IBRA's deputy chairman for Asset Management
Credit (AMC) division, was quoted by Antara as saying that there
were so far 31 investors, four of them foreigners, who had
expressed interest in the assets.
"They are now conducting due diligence over the assets," he
said, adding that the bidding would start on July 17.
The sale of the assets, which are made up of commercial and
corporate debts, will avail of a combined mechanism of direct
selling and tenders.
Commercial debts are categorized to be those worth between Rp
5 to Rp 50 billion, while those of more than Rp 50 billion are
grouped as corporate debts.