The Indonesian Bank Restructuring Agency (IBRA) regional road show stopped in Hong Kong on Tuesday to take questions from potential investors and to plead patience. IBRA has come under fire for last week's decision to again postpone the sale of two banks. Much of the confusion over what IBRA is doing – or not doing – stems from its enormous size and role in the Indonesian economy, and its top brass are trying to better explain how it works.

In the process, IBRA disclosed it is considering merging those banks it has recapitalized which don't meet Bank Indonesia's capital adequacy ratio (CAR) requirements by the end of next year. According to the central bank, all Indonesian banks must have a CAR of at least 8% by end-2001. Some banks such as Universal Bank are not on track.

"Among the 11 banks recapitalized by IBRA, a few won't reach 8% by the end of 2001," says Arwin Rasyid, vice chairman at IBRA. "We will invite foreign partners to inject equity. If that does not work, we could force a merger ... it is very early and this is not an official announcement." But it is a move IBRA is studying.

Rasyid says the divestments of Bank Central Asia (BCA) and Bank Niaga are likely to take place in the second or third quarter of next year. Under the letter of intent with the International Monetary Fund the sales were to go ahead this year but were postponed to seek better market conditions.

For many investors attending the Hong Kong presentation, the leading question for IBRA was: will it sell? Potential buyers privately criticized IBRA for the BCA and Niaga delays. Market conditions haven't been favourable "since 1995", quipped one investor.

Rasyid told FinanceAsia that the prickly question of selling IBRA-controlled assets back to their original owners is a concern. This summer, IBRA had said it was negotiating a package deal with Anthony Salim of the Salim Group; about half of the companies IBRA has confiscated are from Salim. Rasyid says that deal has been "put on the backburner" following an outcry from parliament.

He says although IBRA is a commercial entity with a responsibility to sell these companies to spur the economic recovery – as well as contribute to paying the government budget deficit – it wishes to avoid selling companies back to the Suharto-era cronies who lost them to IBRA in the first place. For now, outright deals with these tycoons are over, Rasyid notes.

The concern is that these tycoons can buy back their companies through fronts or hidden deals with other investors. There is no feasible way IBRA can outlaw such backdoor takeovers, and Rasyid says it must rely on its market contacts to shed light on the true investors. "If someone was to buy back a company without telling us first, we would be very angry," he says.

An introduction to IBRA

According to IBRA officials, the Agency (known in Indonesia as BPPN, Badan Penyehatan Perbankan Nasional) is required to dispose of all $62 billion of its assets by 2004. So far it has executed $750 million in transactions by selling corporate loans and expects to raise another $800 million by the end of this year.

Its three objectives are to restructure banks, and the $30 billion of loans seized from these banks, and to sell the assets taken from the banks' original shareholders. All done, it hopes, in a fair, transparent and commercially oriented process.

Of the $62 billion in assets and claims on its balance sheet, these can be divided into four categories: financial assets ($31 billion), recapitalized banks ($15 billion), bank owners' shareholdings ($13 billion and set to rise to $15 billion) and non-core assets seized from banks such as buildings and cars ($1 billion).

One reason why understanding IBRA is difficult is because different sales come from different parts of the agency. The Astra International strategic sale came from the Asset Management Investment group dealing with bank owners' shareholdings; the 22% initial public offering of BCA came from the category of recapitalized banks, and so on.

IBRA is mandated to raise funds for the government's budget deficit. Those targets are: $2.0 billion for 1999; $2.2 billion for 2000 (it is still $800 million short); $3.3 billion for 2001. This year, for example, the government's deficit is Rp44 trillion (around $4.5 billion), with IBRA sales, loans from foreign governments and privatization (a stalled process) supposed to cover the difference.