REI proposes plan on debt restructuring

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)