Sat, 21 Jun 2003

IBRA warns banks not to rush to issue bonds

The Jakarta Post, Jakarta

The Indonesian Bank Restructuring Agency (IBRA) warned the banks under its supervision on Friday not to force themselves to issue bonds whenever they wanted to strengthen their capital if other options were available.

"If we can still seek funds from other sources, then why force it?," IBRA deputy chairman I Nyoman Sender told reporters as reported by

"We need to assess this, both the benefits and losses. We also need to examine the impact," he said, adding that a team had been set up to carry out the assessment.

He was responding to requests from Bank Internasional Indonesia (BII) and Bank Permata, two of the four banks operating under IBRA supervision, to issue bonds to strengthen their balance sheets.

The other two are Bank Lippo and Bank Danamon.

Sender was echoing IBRA chairman Syafruddin Temenggung, who days earlier had issued a similar warning.

BII and Bank Permata seem to following the recent trend in which banks, and also corporations, have been taking turns in issuing bonds, making this a popular option amid a declining trend in Bank Indonesia's benchmark interest rate.

Syafruddin has said that despite the fact that the country's bond market had responded well to the bond issues, that did not necessarily means that such a course was a risk-free option.

Among other dangers, he pointed out, the issuing of subordinated bonds -- ones that were meant only to strengthen working capital -- was not guaranteed by the government in event of default. This meant there was a risk for investors.

As for those types of bonds that were guaranteed by the government guarantees, the risks would be borne by IBRA.

As the majority shareholder in the two banks, IBRA will have the obligation to cover payments on the bonds should one of the banks fail to do so.

BII has proposed the issuing of Rp 2 trillion worth of bonds as part of the bank's move to switch more of its financing into longer maturities.

BII hoped the planned issue could take place in the second half of the year.

Permata has also proposed issuing bonds in the form of mutual funds backed by the recapitalization bonds it holds. The bond issue is expected to be worth around Rp 1 trillion.

Permata, which emerged last year from the merger of Bank Universal, Bank Bali, Bank Prima Express, Bank Patriot and Bank Media Artha, currently holds about Rp 11.5 trillion in recap bonds.