IBRA to revise Bank Bali management contract

IBRA to revise Bank Bali management contract

JAKARTA (JP): The Indonesian Bank Restructuring Agency (IBRA)
and Standard Chartered Bank (SCB) have agreed to revise their
management contract for Bank Bali, including the removal of a
penalty clause.

IBRA's deputy Farid Harianto told the House of Representatives
commission IX on banking and budget in a hearing session on
Wednesday that the revision of the management contract followed
the massive protests by Bank Bali employees against the SCB
management team.

"We have agreed to drop the penalty clause," Farid said,
referring to US$25 million penalty IBRA has to pay the British
bank in case of early termination of the agreement.

IBRA took over insolvent Bank Bali in late July and
immediately handed over the bank's management to SCB under a
three-year agreement.

The management contract was supplemented with an investment
agreement whereby SCB will be entitled to acquire 20 percent of
the bank after its rights issue and majority ownership within
five years.

Under the management contract, Bank Bali must pay SCB $25
million in compensation in case of an early termination of the
agreement. SCB is also entitled to $2.5 million in compensation
if it decides by itself to pull out from the agreement before its
expiry.

Following weeks of protest rallies by Bank Bali's employees
against SCB management, IBRA temporarily replaced the SCB
management team last week with its own staff and outside
professionals.

Bank Bali staff had protested against the expensive
expenditure of the SCB staff working in the bank, and the
excessive number of the foreign staff brought in by the British
bank.

Farid admitted that some of the accusations made by the Bank
Bali employees had proven to be true.

Farid said that IBRA had agreed to allow SCB to hire a maximum
of eight expatriate staff for its management team at Bank Bali.

Farid said that SCB had brought some 53 of its staff into Bank
Bali, of which some were on a part-time basis.

Bank Bali staff also charged that the total expenses for the
SCB staff amounted to Rp. 7.5 billion per month, including
spendings on luxurious apartments and cars, while the total
payroll for the entire local staff of 6,300 was only Rp. 8
billion.

IBRA is now conducting a legal and financial audit on Bank
Bali following the replacement of the SCB management team.

Separately, legal experts contended on Wednesday that IBRA
should have terminated the management agreement with SCB without
paying any penalties because the contract had not yet come into
effect legally.

In fact, the experts argued, the management contract should
not have been implemented in the first place, and SCB should not
have been allowed to bring in its own management team because
Bank Bali had yet to proceed with its rights issue.

"Article 3 of the agreement essentially stipulates that the
agreement shall take effect for a fixed term of three years only
after Bank Bali has completed its rights issue for its
recapitalization," experts from a legal consulting firm said in a
statement.

"However, while the bank has yet to make its rights issue
which IBRA said last week would take place only next month. SCB
took over Bank Bali's management in late July," they added.

The lawyers quoted a provision in the agreement as saying that
the agreement comes into force after Closing, which is defined as
"the issue to IBRA of Bank Bali's B common shares pursuant to a
proposed rights issue for the recapitalization of the bank and
the purchase by or issue to SCB of Bank Bali's B common shares in
the context of the bank's recapitalization."

IBRA confirmed last week that Bank Bali's rights issue, which
has been delayed for several months by the furor over the scandal
of the questionable payment by the bank to a company linked to a
Golkar official, would most likely be made sometime next month.

The legal experts also questioned the monopoly right granted
by IBRA to SCB to buy Bank Bali's shares after its rights issue.

Under the government-sponsored recapitalization program, Bank
Bali will make a rights issue whereby IBRA will be a standby
buyer of the shares which are not taken by existing shareholders.

Under its investment agreement with IBRA, SCB will immediately
buy 20 percent of the shares acquired by IBRA through the rights
issue and will have the first option to take the remaining 80
percent within five years.

"This totally smacks of collusion," the legal experts alleged.

Citing another flaw of the agreement, the experts pointed out
that the management service fees for SCB, defined as SCB's costs
of providing management services to Bank Bali plus 20 percent of
net income, had so far been paid or reimbursed immediately after
they were incurred (car purchases, house and apartment rentals
and airfares for SCB's staff).

"This is entirely in violation of the agreement which requires
the payment of the management service fees only on a quarterly
basis," the statement added.(rei/vin)