Owners to get priority in bank sale

Berni K. Moestafa, The Jakarta Post, Jakarta

A senior central bank official said that shareholders of recapitalized banks had the initial right to purchase stakes in their banks before the government sold them off to strategic investors.

Bank Indonesia director for banking supervision Siti Fadjriah said on Tuesday the divestment program of recapitalized banks should aim at selling to shareholders first.

"In the first three years, the divestment of banks must be prioritized to the old owners," Siti said, following a seminar on good corporate governance.

Her statement comes as the government is offering a 51 percent stake in Bank Niaga, and plans to sell more of its majority stakes in Bank Danamon and Bank Lippo later this year.

Shareholders of recapitalized banks may raise their ownership through what is known as a certificate of entitlement.

The Indonesian Bank Restructuring Agency (IBRA) issued the certificate as part of the banks' recapitalization program.

Under the program IBRA replaced banks' bad loans with fresh capital in the form of recapitalization bonds to keep them afloat when the financial crisis struck the country in 1997.

To minimize the amount of bonds spent on the banks, IBRA urged shareholders to inject capital as well, for which, in return, they would receive a certificate of entitlement.

Once the certificates fall due, the shareholders may increase their ownership using a portion of the net proceeds from IBRA's sale of the bad loans it took over from banks.

Siti said when the certificates were issued in 1999, the government assumed the economy would have recovered by 2002.

"That's why the (certificate) program runs for three years," she said, adding that some of the certificates fell due this year.

On Tuesday Tempo daily reported that certificates of Bank Lippo and Bank Universal would fall due in April, with those of Bank Internasional Indonesia (BII) to follow in May.

"We're ready for it (the conversion of certificates into shares)," said head of IBRA's Bank Restructuring Unit, Soebowo Musa.

The shareholders, he said, would receive a percentage of the net proceeds from IBRA's sale of the nonperforming loans.

But what was once a sweetener to persuade shareholders to inject capital to reduce the cost of bailing out their banks, may now stand in the way of selling them to strategic investors.

The timing of the certificate expiry dates spread over the year, coincides with IBRA's plan to carry out more bank divestments this year.

With Soebowo implying IBRA's readiness to sell the stakes first to eligible shareholders, it remains to be seen whether this can be done without disrupting the divestment program.

IBRA has already offered a 51 percent stake in Bank Niaga, eliciting 14 investors to respond to its bidding invitation.

Soebowo was unable to say how much in stakes the owners would receive if they exercised their right to convert the certificates into shares.

Allowing shareholders to increase their ownership will also slash the already-meager proceeds from IBRA's sale of the bad loans.

The agency uses the proceeds to cover the banks' bailout costs, which amount to billions of U.S. dollars, and remain a crushing burden on the state budget.

Although shareholders, whose mismanagement of these banks led to their near collapse, have been banned from owning a stake in a bank, they may still enjoy the benefit of selling the certificates.

The certificate of entitlement are marketable securities and thus tradable.

IBRA chairman I Putu Gede Ary Suta admitted the certificates had been a old matter no one had attended to.

"It is a big issue, but it has been forgotten by the previous people (in IBRA)," Ary Suta said on the sidelines of the seminar.