Local firms may turn to foreign banks

Local firms may turn to foreign banks

JAKARTA (JP): More local companies are likely to turn to
overseas banks for loans in reaction to the central bank's plan
to squeeze the lending market.

Banking analysts concur that local companies will have little
alternative but to go offshore if they want to obtain cheaper
loans.

This week alone, at least two local companies signed lending
facilities with offshore financial institutions.

One of the two, Megacity Development Corporation, said it
secured a loan of $121.5 million, while Sekar Group, the other
firm, said it raised $30 million.

Banking analysts expect more companies to follow suit to avoid
high interest rates at home.

"I think seeking financing facilities from offshore banks will
be much cheaper than domestic loans, which are expected to become
much more costly when the central bank's new reserve requirement
becomes effective early next year," an analyst said.

Bank Indonesia announced last week that commercial banks must
increase their reserves to 5 percent of their total deposits
beginning in April, from 3 percent at present.

The analysts said that the increase in the reserve
requirement, which will be the second since February, will
tighten the lending market significantly.

They said that lending rates, which average 24 percent per
annum at present, are expected to increase by one to two
percentage points when the new reserve requirement come into
effect.

The annual lending rates on foreign loans are set at between
1.5 and two percentage points above the Singapore Inter-bank
Offered Rates (SIBOR) of around 6 percent per annum.

The analysts said that interest rates set by foreign banks
will remain lower than those charged by local banks even after
the offshore loans, mostly denominated in U.S. dollars, are
adjusted to Indonesia's inflation rate and swap costs.

Bank Indonesia Governor J. Soedradjad Djiwandono said recently
that the monetary authority will continue to restrict the flow of
short-term borrowings so that the increase in offshore borrowings
will not worsen the country's widening current account deficit.

The central bank limits the offshore borrowings of state-owned
banks and companies. But the restriction is often not very
effective because private companies tend to get offshore loans
through domestic private banks, which are exempt from offshore
borrowing caps. Private banks and companies are only required to
report their offshore loans to the central bank.

Loans

Megacity Development Corporation signed lending facilities on
Tuesday worth US$121.5 million from a syndication of local and
foreign banks to finance its township project on the site of the
former Kemayoran airport in Central Jakarta.

Megacity, a consortium consisting of Napan Group, Gajah
Tunggal Group and Amcol Group, plans to develop 28 apartment
towers and a nine-hole golf course on the 46.5 hectare plot.

Meanwhile, the Sekar Group, through its subsidiaries PT Sekar
Laut and PT Pangan Lestari, signed in Surabaya yesterday a loan
facility worth $30 million to strengthen its working capital and
business expansion.

The loan facility was arranged by American Express Bank Ltd
and the Singapore branches of Banque Nationale de Paris and
Sumitomo Bank.

The Sekar Group said that the loan syndication was well
accepted and was oversubscribed by more than 30 percent from the
original facility amount of $27.7 million by banking groups from
the United States, France, Japan, Singapore, Germany and the
Netherlands.

Sekar Laut, listed on the Jakarta Stock Exchange, is involved
in the production of shrimp crackers for the domestic and export
markets.

Pangan Lestari is the distribution arm of Sekar Laut for the
domestic market and operates through 4,000 distribution outlets.
(hen)