IBRA restructuring rules aim for transparency

IBRA restructuring rules aim for transparency

JAKARTA (JP): The Indonesian Bank Restructuring Agency (IBRA)
expects to make its debt-restructuring deals fully transparent
with the issuance of restructuring principles in response to
criticisms that the agency has been offering "sweetheart" deals
to large debtors.

According to the principles, a copy of which was obtained by
The Jakarta Post, a transparent debt-restructuring process would
maximize the recovery rate for the government.

"They (the principles) are designed to promote economically
viable restructurings, which are the key to sustained economic
recovery and a reduction in unemployment," the document said.

The debt-restructuring principles were adopted early this
year, but IBRA had never made them public.

The government attached a copy of the principles to the draft
of the upcoming letter of intent (LoI) that was worked out with
the International Monetary Funds (IMF) last week.

The government established IBRA in 1998 to take charge of the
restructuring of non-performing loans taken over from local
banks. Since then, the agency has amassed bad debts and taken
over assets worth some Rp 600 trillion.

IBRA restructures loans by, among other things, selling the
collateral or rescheduling debt repayments. The proceeds are then
transferred to the government as revenues for the state budget.

But IBRA has been criticized for allegedly offering certain
debtors sweetheart restructuring deals at the expense of getting
maximum recovery rate.

"To this end, the principles recognize that the borrowers must
repay to the maximum extent of their ability and they should
personally guarantee their company's debts," the principles
state.

But despite the instruction, in some cases it remains unclear
whether large debtors have indeed pledged their personal
guarantees.

For instance, the Sinar Mas Group owed its affiliate Bank
Internasional Indonesia (BII) debts worth US$1.2 billion, which
were later taken over by IBRA.

But the guarantee agreement between IBRA and Sinar Mas does
not mention the name of Sinar Mas' founding owner, Eka Tjipta
Widjaya, among the list of those having to surrender their
personal assets.

As yet, IBRA cannot confirm whether Eka has pledged his own
assets as collateral to the agency.

Analysts have also warned that former owners might regain
control of companies they had once surrendered as collateral to
IBRA.

Such moves would allow owners to "park" their financially
ailing firms or banks at IBRA, and buy them back once they had
been nursed back to health.

It is feared that the restructured firms under their former
owners could suffer from the same mismanagement that led them in
the first place to the IBRA "restructuring hospital".

The principles stipulate that all necessary steps are taken
"... to ensure that enterprises, which remain debtors to the
state, are operated in a safe and sound manner in the public
interest and cannot be misused by former owners to promote their
own interests."

"For this reason, the majority of the equity in large
restructured enterprises will normally be provided to creditors,
including IBRA."

As to the debt restructuring process itself, the principles
require an independent assessment of the future viability of
indebted enterprises.

The assessment will explore all recovery options, including
the sale of loss-making and/or non-core units, and the winding up
of non-viable companies, the principles said.

"Sustainable debts will be rescheduled on market terms, non-
productive assets sold, and the remaining debt converted into
quasi-equity (normally long-term convertible bonds), and equity."

IBRA, as a shareholder in an indebted company, would "in every
case initially assume a majority position."

But the principles add that this majority position would only
be of a temporary nature so as to ensure the recovery of
remaining debts to the government.

The document further said that through its position as
creditor and quasi-equity holder, IBRA will assure its
entitlement to, among other things, control cash flows,
accelerate debt repayments from excess cash, and set company and
management performance targets.(bkm)