Standard Chartered to inject US$56 million into Bank Bali

JAKARTA (JP): The United Kingdom-based Standard Chartered Bank agreed on Thursday to inject US$56 million (Rp 487 billion) into publicly listed Bank Bali to finance 20 percent of the bank's recapitalization funding requirement.

The deal represents the first foreign investor participation in the recapitalization of the country's battered banking industry.

"This recapitalization agreement will turn Bank Bali into a healthy institution within three years," Bank Indonesia director Subarjo Joyosumarto said, after signing the agreement involving the two banks, Bank Indonesia, the Ministry of Finance and the Indonesian Bank Restructuring Agency (IBRA).

"This indicates a vote of confidence from foreign investors on the government's (banking) measures," said IBRA chairman Glenn S. Yusuf.

Based on a due diligence audit conducted in 1998, Bank Bali needed Rp 2.4 trillion to lift its capital adequacy ratio (CAR) to the minimum 4 percent level set by the government. CAR is the ratio between equity capital and risk-weighted assets.

"This transaction represents our faith in the underlying strengths of the Indonesian market and our belief that the recapitalization scheme will be successful," said Standard Chartered's group chief executive Rana Talwar.

Under the program, the government will issue bonds to meet up to 80 percent of the recapitalization funding requirement, while the banks are required to provide the remaining 20 percent.

The government has pledged to recapitalize nine private banks including Bank Bali to lift the banks' CAR to the 4 percent minimum level.

The other eight private banks joining the recapitalization program are publicly listed Bank Lippo, Bank Internasional Indonesia, Bank Universal, Bank Niaga, non-listed Bank Bukopin, Bank Artha Media, Bank Prima Express and Bank Patriot.

Subarjo said a reaudit process on Bank Bali was still underway to determine the exact amount of the bank's capital requirement. He said the reaudit was necessary, as the bank's capital condition might have deteriorated between January and April due to persisting negative interest rate spread.

Under the terms of the agreement, Standard Chartered will acquire 20 percent of Bank Bali and take over management control.

Standard Chartered, which has been doing business in Indonesia for 130 years, outbid an earlier offer made by U.S.-based GE Capital to finance the ailing bank.

Glenn said Standard Chartered was chosen because it proposed a better deal, both for the government and Bank Bali shareholders.

An IBRA executive said Standard Chartered also agreed to take up the government's 80 percent share in Bank Bali within five years at the highest market price.

"This means the government won't lose at least its principal investment, should no one be interested in the bank," the source told The Jakarta Post.

He said Bank Bali would soon hold a shareholders meeting to determine whether Standard Chartered would enter Bank Bali through a rights issue mechanism or a private placement.

Bank Niaga

Investors seemed less interested in participating in Bank Niaga's recapitalization.

Bank Niaga announced on Thursday it had decided to opt out of the government-sponsored recapitalization program, effectively forcing the government to take over the bank.

"Shareholders have the right to back off... because of a disagreement in the recapitalization terms and conditions," the bank said in a statement.

Earlier, nine private banks, including Bank Niaga, signed recapitalization agreements with the government, in which the banks agreed to provide the 20 percent recapitalization funding requirement in cash by April 21.

Subarjo declined to confirm whether the government would take over Bank Niaga, saying staff were still reviewing the recapitalization process.

The government is also set to announce recapitalization details on the country's 32 joint-venture banks.

Subarjo said the government would not provide any funds to recapitalize the joint-venture banks. If foreign shareholders declined to recapitalize their operations, the banks would be liquidated, he said.

In a related development, Oke F. Supit, a member of the House Representatives Commission VIII for the state budget and finance, warned that publicly listed banks intending to increase equity capital were required by law to issue rights shares.

"I notice that only two of the five publicly listed banks qualified to join the government-sponsored bank recapitalization program have made rights issues," Supit said on Thursday.

He cited the capital market law and rules determined by the Capital Market Supervision Agency that make rights issues compulsory for publicly listed companies, including banks.

Supit said rights offerings were designed to protect the investing public.

"A rights issue allows the investing public, who are usually minority shareholders, to buy a proportionate number of new shares issued at a lower price so that their shareholdings will not be diluted." (rei/vin)