November 4, 2001	Sunday	Shaba’an 17, 1422

JAKARTA, Nov 3: A plan by Indonesia’s largest bank, state-run Bank Mandiri, to take over another embattled financial institution as part of efforts to strengthen the frail sector appears to have run into trouble.

Speaking at a news conference late on Friday, State Enterprises Minister Laksamana Sukardi cast doubt on the planned takeover of Bank Internasional Indonesia (BII), the country’s fifth largest bank in terms of assets.

The acquisition plan involving BII can change and (we) are seeking a second opinion...hopefully there will be a final decision this month. It might go ahead or it might not, Sukardi said without elaborating.

A financial source involved in the takeover told Reuters on Saturday the plan might be aborted because of BII’s poor financial situation.

That would allow Mandiri to focus on its long-planned initial public offering, which has been delayed by the intended acquisition, said the source, who declined to be identified.

There are many problems (with BII) and it appears Mandiri is reluctant to proceed with the acquisition, the source said.

Mandiri officials were not available and a BII executive reached by telephone would only repeat what Sukardi said.

The news came as a surprise since the government earlier on Friday said it would issue some $1 billion in bonds next week to replace a large chunk of BII’s $1.3 billion in troubled loans to its former owner, the Sinar Mas Group.

What would happen to that debt has worried Mandiri, and the government devoted much effort to resolving the issue and getting the green light from parliament for the debt swap.

Mandiri’s takeover plan was announced last July.

But the doubt over the acquisition and BII’s own knotty debts show that even after spending a massive $60.7 billion to rescue its banks in the aftermath of the Asian financial crisis, Indonesia’s financial system remains fragile.

Indonesia’s slowing economy and a persistently weak rupiah have made things worse, especially for companies burdened by foreign debts and local obligations carrying high interest rates.

The government took over BII from Sinar Mas Group following the bank’s recapitalisation in the wake of the Asian financial crisis of the late 1990s.

Mandiri’s plan to take over BII arose when Sinar Mas failed to service its debts to BII after they were restructured under a separate deal with the Indonesian Bank Restructuring Agency (IBRA), which holds 57 per cent of the bank.

The default forced the government to seek ways to help the bank stay afloat to avoid further denting already low confidence in the country’s financial system.

Sinar Mas is also the controlling shareholder of debt-laden Asia Pulp & Paper (APP), which is struggling to restructure a massive $12.2 billion in debt. Of the $1.3 billion in Sinar Mas debts to BII, APP owes about $1 billion.

The International Monetary Fund has previously warned Indonesia over Mandiri’s plan to take over BII, saying it might burden Mandiri as the bank had yet to fully complete its own merger process. Mandiri was created in 1999 from the merger of four ailing state banks.

The BII executive, Halim Sutanto, a member of the bank’s government-appointed management team, said the bank booked 159 billion rupiah in net losses for the first nine months of the year from a net profit of 182.62 billion rupiah a year ago.

At the end of September the bank’s capital adequacy ratio, which measures capital against risk-weighted assets, stood at 14.1 per cent. The non-performing loan ratio was at 18 per cent.

But that NPL figure excludes the Sinar Mas loans, Sutanto added. BII closed unchanged at 20 rupiah on Friday.—Reuters