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.