IFC invests $10 million into the listed Bank NISP
JAKARTA (JP): The International Finance Corporation (IFC), a financial arm of the World Bank, said on Monday it had invested US$10 million in equity participation at the publicly listed Bank NISP.
IFC regional representative for Indonesia Amitava Banerjee said the investment showed IFC's confidence in the battered banking sector of Indonesia.
"Although small in amount, the investment is important to show that an institution with a good reputation can still attract foreign investors," Banerjee told reporters in a press meeting.
The IFC and NISP signed the agreement on Oct. 16, which according to NISP, would allow the IFC to obtain a stake of up to 15 percent in the bank.
Banerjee said that in 1997, the IFC had already provided the bank with $10 million in loans, of which under the current agreement $5 million would be converted to equity.
The IFC, he went on, would then inject another $5 million in fresh funds, to round up the total investment of $10 million.
Banerjee said that NISP's focus on small and midsize companies was the main reason the bank was selected.
"It's (NISP) a well managed but medium sized bank supporting small and midsize enterprises," he went on.
NISP president Pramukti Surjaudaja said that the $10 million in funds would be entirely used to strengthen the bank's working capital.
He said that although the bank's current capital adequacy ratio (CAR) stood at 12 percent, far higher than the minimum requirement of four percent, the bank needed assurance.
CAR measures the ratio of a bank's capital against its risk weighted credits.
"In these times we never know for sure (the situation), so we feel safer by having the funds," he explained.
During the crisis, many banks recorded a negative CAR as most of their equity had been eaten up by a cycle of high spending in an effort to maintain their third party funds.
Bank Indonesia now requires banks to raise their CAR to eight percent by next year and 12 percent by 2002.
From the $10 million in the IFC's 1997 loans, Pramukti continued, the bank had returned $4 million in principle payments.
He said that of the remaining $6 million, the bank would only have to pay $1 million, as the IFC had agreed to convert the other $5 million into equity.
Pramukti said the bank would hold a right issue sometime later this year to allow the IFC to raise its ownership to a 15 percent stake.
He said that for the right issue, the IFC agreed to buy NISP's stake at Rp 400 per share, higher than its current market price of Rp 270. Pramukti could not elaborate on the bank's right issue plan.
Founded in 1941, NISP booked a net profit of Rp 26.2 billion ($2.9 million) as of August this year, up from 1999's total net profit of Rp 19.5 billion.
Banerjee further said that the IFC had been in Indonesia since 1968 with a cumulative investment of over $2 billion.
He added that since the early 1990s, the institution had invested almost $900 million in loans and equity in various companies.
"In the last couples of years we have not made significant investments here in Indonesia," he said.
However, he said, looking at the opportunities ahead in the next year, the IFC was expecting $150 million in new investments.
"We are looking quite aggressively at providing financing for trade facilities," he went on.
Other areas that the IFC was looking at were resource based export oriented companies, such as gold mining companies, mining contractors, palm oil and textile companies, he said.
Banerjee added that the $150 million would come in the form of a combination of loans and equity investments.
"Typically about two thirds to three quarters of our investments are in the form of loans," he explained.
The IFC, he went on, saw itself as a catalyst investor which required the cooperation of local financial institutions as it usually contributed no more than 25 percent of a credit scheme. (bkm)