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)