Plan to swap Sinar Mas debt with govt bonds approved

JAKARTA (JP): The House of Representatives approved on Thursday the government's plan to issue bonds to allow the Sinar Mas Group's huge debts to Bank Internasional Indonesia (BII) to be transferred to the Indonesian Bank Restructuring Agency (IBRA).

The decision was taken by House Commission IX on the state budget and finance after a vote as legislators had failed to reach a unanimous agreement on whether to bail out BII at an earlier closed-door meeting late on Wednesday.

Under the plan, IBRA will take over Sinar Mas debts to BII worth US$1.059 billion plus Rp 1.8 trillion, and in return the government agency will inject the ailing bank with so-called "recycle bonds".

Later, the government will replace the recycle bonds with hedged bonds which are to carry a lower interest rate, namely the Singapore interbank offering rate (SIBOR) plus two percent compared to the current 12.5 percent on government bank bonds, so as to help ease the burden on the state budget. The hedged bonds will be equivalent in value to the Sinar Mas dollar-based debt in BII.

The transfer of Sinar Mas debt to IBRA is necessary in order to bail out and protect BII. The government argues that the conglomerate's difficulties in repaying its $12 billion debt to foreign creditors could do serious damage to BII.

BII was founded by Sinar Mas, which was the country's second largest business group prior to the 1997 financial crisis.

In return, Sinar Mas founding shareholders must pledge assets worth 145 percent of the group's total debt to BII.

Legislators have expressed concerns, however, that the government might be unable to sell the assets when required as Sinar Mas might have also pledged the assets to its international bondholders as collateral.

There have also been worries that the government might have to face law suits from Sinar Mas international bondholders if it moved to acquire assets already pledged to the creditors.

These concerns have resulted in some legislators disagreeing with the bailout plan.

"Who can guarantee that the assets have not been put up as collateral for other loans," legislator Aberson Sihaloho asked Minister of Finance Boediono during a hearing on Wednesday.

Legislators have also asked the government to secure a personal guarantee from Sinar Mas shareholders, including aging founder Eka Tjipta Widjaja, so as to protect the interests of the state.

"The government seems to be reluctant to ask for Eka Tjipta Widjaja's personal guarantee, but we insisted," said legislator Syamsul Balda of the Reform Faction.

"If Eka Tjipta Djaja is not cooperative, the government should take legal action and impose a travel ban if necessary," he said.

Meanwhile, IBRA Chairman I Putu Ary Suta said that the agency would conduct financial and legal audits on the assets pledged by Sinar Mas.

BCA

Meanwhile, Commission IX legislators decided to once again delay making a decision on whether to approve the government's plan to divest a 51 percent stake in Bank Central Asia (BCA) this year.

"The deliberation of the BCA divestment plan has been postponed until Monday," legislator Paskah Suzetta said without elaborating.

The legislators were initially expected to reach a decision last Monday.

The BCA divestment plan is part of the government's latest agreement with the International Monetary Fund to allow the later to disburse the latest $400 million tranche of its lending program to the country.

BCA was previously owned by the giant Salim Group, which had to surrender the bank to the government after it violated banking rulings by channeling funds to affiliated Salim firms in excess of prudential limits.

There has been speculation that the Salim family was trying to block the planned sale as it was still very interested in buying back the bank. At the moment, legislators are still against any move by Salim to buy back BCA or other assets already pledged to the government.(03)