REI proposes plan on debt restructuring

JAKARTA (JP): The Indonesian Property Developers Association (REI) provided on Thursday a debt restructuring proposal to the Indonesian Bank Restructuring Agency (IBRA), in a bid to prevent liquidation of debtors' property assets at fire-sale prices.

REI executive Kosmian Pudjiadi said IBRA would recover more of the Rp 10.3 trillion (about US$1.4 billion) nonperforming loans owed to the agency through debt restructuring measures.

"We don't want IBRA to auction the property assets, because it would only benefit foreigners who could buy the assets at a very low price and would control the country's property sector," he said.

IBRA is a government agency established last year with a mission to recover nonperforming loans taken over from nationalized and closed down banks.

Kosmian said under the debt restructuring proposal, IBRA would establish a real estate investment trust (REIT), which would manage all property assets of the indebted developers.

He said REIT and the developers would design a debt restructuring plan, which would involve either a debt to equity swap or a debt to asset swap.

Kosmian said that at a later stage IBRA would form a real estate investment corporation (REIC), which would repackage the property assets into specific sectors, including hotels, apartments, offices, land banks, resorts, housing and industrial estates.

He explained that specific REICs would essentially become several merged-property companies, which were financially healthy because IBRA or REIT had cleaned up their debts.

The Indonesian property sector has been badly hit by the ongoing economic crisis, skyrocketing interest rates and a devalued rupiah. Debts have inflated and sales revenues have dropped sharply.

Kosmian said IBRA could recover nonperforming loans through sales of a maximum 50 percent stake in specific REICs to prospective investors through private placement, an initial public offering or a rights issue mechanism.

"The repackaging is needed to make it easier for prospective investor to buy into the assets.

"Through this mechanism, IBRA can still control the property market and, at the same time, raise money," he said, adding that founding shareholders of the property companies could maintain stakes in the company, though at a sharply diluted level.

Kosmian said in order to attract investors, IBRA must inject working capital to specific REICs to increase their value.

"The government can raise the money (for the working capital) by issuing exchangeable bonds which could be either guaranteed by the Japanese government or the World Bank."

Kosmian was optimistic about the country's property sector, particularly if the debt restructuring plan could proceed.

He pointed out that the country's macroeconomic condition was improving, and the economy was projected to grow by 3 percent next year.

"Because of the economic crisis, property supply has been sharply cut down, meaning that the property sector had a bright prospect."

IBRA, however, does not share his optimism..

IBRA deputy chairman Eko S. Budianto said recently that only the hotel and resort subsectors had good prospects because they were backed up by thriving tourism.

Obstacles facing the REI-proposed debt restructuring proposal may also come from differences in valuing the property assets. Eko said the value of property assets under the agency had been marked up.

"We can discuss these differences later. The important thing is that we must prevent foreign control over the country's property sector," Kosmian said.(rei)