IBRA's asset sales

The Indonesian Bank Restructuring Agency (IBRA), hard-pressed to raise at least US$5.1 billion (Rp 36 trillion) by December for the state budget, has of late been flaunting its asset disposal plans covering equities in going companies, bad loans and properties spread throughout the country. This is all part of about Rp 600 trillion (book value) worth of assets taken over by the agency from state banks and closed, nationalized and recapitalized banks.

The agency announced detailed plans to sell within this year equities in at least 20 companies, including Bank Central Asia (BCA), and a good portion of 1,105 properties, or bank offices, and some of the Rp 220 trillion worth of bad loans it now manages.

The plans, which appear well-prepared, do not, however, impress anyone who is familiar with the agency's shoddy deals over the past year. In fact, IBRA may fall behind its target of raising Rp 17 trillion in the current fiscal year ending later this month. The agency had collected only Rp 10.5 trillion as of early this month, and the only major source of possible revenue until the end of the fiscal year is the sale of its 40 percent equity in PT Astra International, which is expected to bring in about Rp 3 trillion.

While South Korea and Thailand have been enjoying strong recovery due to the massive return of foreign direct investment, mainly through asset acquisition, Indonesia remains mired in a slump. South Korea, for example, has been working really hard to put out the welcome mat for foreign investors. It got $15.5 billion in foreign direct investment last year, or twice as much as that in 1998, mainly through asset sales.

As the rupiah exchange rate to the dollar is still more than 66 percent lower than it was at the beginning of the economic crisis in mid-1997, IBRA, which holds a huge amount of assets, was supposed to be a one-stop service for foreign investors. But instead of becoming a paradise for deals, IBRA has often been seen as a labyrinth that confuses investors combing through the rubble of assets in its holding.

Standard Chartered Bank of Britain, the first foreign investor seriously committed to acquiring a local bank, became so frustrated with the process of its deal with IBRA for equity investment in Bank Bali that it abruptly quit the transaction last year. An American investor consortium led by Newbridge Capital/Global Equity also got burned in their bid to buy IBRA's 40 percent stake in Astra International in January. Though this consortium still joined the second round of bids, the bitter experience adversely affected IBRA's reputation in deal-making.

IBRA announced last month another setback in its plan to sell BCA, saying that the bank's initial public offering could not be launched as scheduled in March due to technicalities.

What makes things even more disappointing is that the reasons behind the thwarted deals were not the prices or sense of nationalism, as many had feared, but IBRA's clumsiness in identifying, documenting and sorting out the bad loans and other assets it now manages. One would understand that since IBRA was set up during the peak of the crisis in January 1998, and served as a dumping ground for ailing banks, the assets it took over were neither clearly identified nor properly documented. But still the whole process should not have taken more than a year to complete.

Because IBRA is one of the major sources of revenue for the state budget -- it is tasked to raise almost Rp 19 trillion between April and December alone -- the agency should have placed top priority in sorting out and processing all the documents related to the acquisition. Only then could it package the assets into easily saleable forms and adequately schedule their sales to achieve maximum value.

A proper documenting process will become even more imperative now as IBRA will soon begin selling the 1,105 properties and smaller sizes of bad loans it took over from closed banks. Selling properties with incomplete legal titles and poorly documented loans will not only lead the agency into a messy litigation process, but also scare away the few remaining investors still interested in IBRA assets.