Plan to swap Sinar Mas debt with govt bonds approved

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)