Standard Chartered to inject US$56 million into Bank Bali

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)