Lippo drops controversial asset sale plan

Rendi A. Witular, The Jakarta Post, Jakarta

Shareholders of publicly listed Bank Lippo decided on Monday to annul an earlier November decision to approve a proposed sale of foreclosed assets, worth about Rp 2.5 trillion (US$289 million).

Bank Lippo president Joseph Luhukay, however, did not provide a clear reason for the decision.

He only said that any sales of the assets, mostly in the form of properties, should first have the approval of the central bank and not reduce the bank's capital.

"If we want to sell foreclosed assets, we should follow the regulations of the central bank and conduct the process cautiously to avoid disturbing our capital adequacy ratio (CAR)," he said, referring to the ratio between a bank's capital and its risk-weighted assets.

The planned sale of the foreclosed assets became a controversy late last year as it was deemed part of a maneuver by the bank's former owner to regain control of the bank at a cheaper price, thus causing losses to the state.

The bank's previous management proposed the sale of the assets and it was approved by the previous board of commissioners. But some suspected that the assets would be sold to people linked to the bank's former owner at a very cheap price.

The accusation was based on the fact that the bank only gave bidders a little time to conduct a proper due diligence process.

The bank claimed that selling the assets would cause its CAR to go down to about 4 percent, way below the central bank's minimum CAR requirement of 8 percent.

This would in turn prompt the bank to launch a rights issue to raise cash to boost its CAR. Since the cash-strapped government, which owns a 57 percent stake in the bank, has no money to exercise its rights, the former bank owner will have huge opportunities to inject cash and regain control of the bank.

The government became the majority owner of the bank after it injected a massive amount of bonds to help recapitalize the bank.

But following extensive criticism from the media, the government, via the Indonesian Bank Restructuring Agency (IBRA), fired the previous management team and assembled a new one.

The authorities are still in the process of investigating the alleged financial scandal.