IBRA to launch $17b loan asset sale Monday

Dadan Wijaksana, The Jakarta Post, Jakarta

As the Indonesian Bank Restructuring Agency (IBRA) gears up with an ambitious plan to sell off bank loan assets worth Rp 150 trillion (some US$17 billion), some analysts have criticized the agency for including unrestructured nonperforming loans (NPLs) in the disposal program.

The agency will officially launch its largest-ever asset sale program on Monday in a ceremony to be led by Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti and State Minister of State Enterprises Laksamana Sukardi.

Banking analyst Dradjat Wibowo says that by combining the sale of restructured NPLs and unrestructured ones, IBRA risks suffering a low recovery of the loans.

"IBRA is assigned not merely to sell assets, but to restructure them first, then sell them to the system," he told The Jakarta Post over the weekend, adding that the recovery rate of the loans would likely stand at around 15 percent, as against the agency's target of about 30 percent.

IBRA received more than Rp 200 trillion worth of NPLs from ailing banks in the late 1990s. The agency is tasked to restructure the loans and sell them to raise cash to help finance the state budget deficit.

This year, the agency is targeted to raise more than Rp 35 trillion in cash to help plug the 2002 state budget deficit, estimated at more than Rp 42 trillion or 2.5 percent of gross domestic product.

Banking analyst Mirza Adityaswara has hailed the program as a breakthrough, saying that IBRA had no other choice than to include the unrestructured loan assets in the sale program if it wants to save them from further deterioration.

"The ideal way is indeed to restructure all the assets first before selling them, but it has been proven to be ineffective so far, so why not do it this way?" he said, pointing out that past restructuring efforts had proven to be costly and very time consuming, while the sale of restructured loans only turned out to generate low recovery.

IBRA said that the loans to be disposed were owed by some 2,500 debtors with various loan sizes, comprising loans of Rp 5 billion to Rp 50 billion, loans of more than Rp 50 billion, and those of more than Rp 750 billion.

The last two category of loans are owed by large conglomerates. The agency has yet to disclose which giant loans are to be included in the program, but said earlier that loans owed by huge business groups like the Texmaco Group, the Tirtamas Group and the Barito Group would be excluded from the program.

The International Monetary Fund (IMF), which is sponsoring the country's economic reform program, first insisted that IBRA sell the loans in packages to attract foreign buyers.

But IBRA chairman Syarifuddin Temenggung rejected the idea, saying that selling the loans in packages would generate a very low recovery of around 8 percent to 10 percent as evident in other crisis-hit countries in the region.

IBRA is planning to sell the loans on an individual basis, and is optimistic that it can generate a high rate of recovery on the back of high demand from local investors. It will sell the loans via a direct sale mechanism and tender process.

Although the sale program is designed to be open to any investors, both local and foreign, IBRA has prohibited the original debtors from buying back the assets.

Those who buy the assets may not be affiliated to the debtors and must sign a non-conflict of interest statement.

But another IBRA official said that the agency would adopt the IMF strategy if its own strategy proved ineffective in the first three months.

Meanwhile, an analyst with a state bank doubted whether the agency had the capacity to manage such a massive asset sale program.

The agency has been criticized in the past for slow progress in the disposal of assets.