IBRA says no to Bank Lippo rights issue plan amid controversies

Sari P. Setiogi, Dadan Wijaksana, The Jakarta Post, Jakarta

The Indonesian Bank Restructuring Agency (IBRA) said that it would not approve Bank Lippo's plan to launch a rights issue until an independent audit of the bank's assets had been completed.

IBRA deputy chairman for bank restructuring I Nyoman Sender added there was suspicion that the deterioration in the bank's capital was part of maneuvers by its former owner to regain control of the bank.

"No, no rights issue for Lippo. The assets of the bank is still under appraisal to determine the real value of the assets," he told The Jakarta Post in a telephone interview last week.

There has been reports that Bank Lippo is planning to launch a rights issue or issue new shares to raise cash to help improve its capital condition.

The bank's capital adequacy ratio (CAR) has dropped to around 4 percent, way below the minimum 8 percent requirement set by the central bank. CAR is a comparison between a bank's capital with its risk-weighted assets.

The management -- which have been accused of acting on behalf of the Bank Lippo founder, the Riyadi family -- has said that the bank's capital had gone down because it had to provide close to Rp 1 trillion to cover the rapid depletion in value of the bank's foreclosed assets.

The assets refer to some Rp 2.7 trillion in mainly property assets the bank seized from debtors who defaulted on their loans before it was recapitalized in 1999.

There is no clear reason why the value of the property assets dropped.

Nyoman said an independent appraisal was underway to review the value of the bank's foreclosed assets.

IBRA currently controls the publicly-listed Bank Lippo.

The government agency recapitalized Bank Lippo in 1999 through a rights issue, using Rp 7.2 trillion worth of state funds to purchase the bank's shares at a price tag of around Rp 260 per share.

In return, IBRA gained a 59 percent stake in the bank, cutting the ownership of the old owner -- which was represented by PT Lippo.Net -- to 8.1 percent, with the remaining shares in the hands of public investors.

Since the cash-strapped government has no money to purchase the new shares when Bank Lippo launches the rights issue plan, IBRA's stake in the bank would be diluted, while PT Lippo.Net could purchase the shares and allow Lippo.Net to increase ownership in the bank at a cheaper cost.

The government would also face strong criticism if it purchases the new Bank Lippo shares as this would mean a second bank recapitalization program and a greater burden on taxpayers.

Bank Lippo shares are currently around Rp 235 per share. But this seemingly high share price was a result of a 1 for 10 reverse stock split late last year.

In reality, the shares dropped 40 percent in 2002.

Investors shunned Bank Lippo after the bank reported a net loss of Rp 1.27 trillion for the first nine months of 2002.

But the report is controversial as the bank published a nine- month net profit of Rp 99 billion in the mass media in November.

The bank's management has said that the two different financial reports were due to different treatment with regards to the sharp decline in the value of the foreclosed assets. In the first report published in the media, the decline in the value of assets had not been obtained.

This case has prompted the Capital Market Supervisory Body (Bapepam) to investigate the bank for giving misleading information. If proven guilty, the bank's board of directors could face up to 10 years imprisonment.