Wed, 09 Jul 2003

Most of IPO proceeds from BRI to plug deficit

Rendi A. Witular, The Jakarta Post, Jakarta

The government said that the proceeds from the privatization of state-owned Bank Rakyat Indonesia (BRI) would be mostly used to plug the state budget deficit rather than increase the bank's working capital.

Nahmudin Yasin, the deputy head for privatization at the Office of the State Minister for State Enterprises, said on Tuesday that the government would only allocate a small portion of the proceeds to support BRI's capital requirements.

"We plan to give a small part of the proceeds to BRI -- we are still discussing the exact figure," said Mahmudin.

The government will sell 30 percent of its stake in the bank to the public through an initial public offering (IPO).

The IPO will be launched in late October or November this year as part of the government's 2003 privatization program.

The government needs to sell state assets to help plug its budget deficit, which it is estimated will come in at Rp 34.4 trillion (US$4.1 billion) this year.

Earlier, BRI's president Rudjito said that the bank needed at least 50 percent of the proceeds, or between Rp 1 trillion and Rp 2 trillion, to help halt its declining capital adequacy ratio (CAR).

In a written report delivered on Tuesday to the House of Representatives' finance commission, BRI revealed that without increased working capital from either the IPO or a bond issue, the bank's CAR would decline to around 11.5 percent in 2004 from the current level of 14.7 percent.

The bank warned that it would be at risk of violating the central bank's "Basel Accord II" ruling which obliges banks to have a minimum CAR of 12 percent next year.

The report also revealed that 50 percent of the proceeds from the IPO would help increase the bank's CAR to 18 percent.

An official at the bank, who refused to be named, said that BRI could actually maintain its CAR above 12 percent without the proceeds of the IPO if it were to reduce its lending activities.

The official feared that if the government refused to entirely give the proceeds to BRI, the bank would not be able to support the country's SME sector as mandated by the government.

The report also said the bank's next bond issue, scheduled to take place this month, would only be enough to help increase the bank's CAR to 14 percent.

BRI plans to issue 10-year dollar-denominated bonds worth $120 million. The bank has appointed UBS Warburg to arrange the sale.

In the first quarter of this year, BRI posted a gross profit of Rp 731 billion, up from Rp 535 billion in the same period last year, on higher interest revenue from loans.

The bank said it would continue to boost profits from its lending, adding that it would unload around Rp 2 trillion worth of recapitalization bonds next year. The bank holds a total of Rp 29 trillion in recap bonds.