Indonesian Bank Restructuring Agency Faces Off with Commercial Banks in Dispute Over Troubled Finance Company Debt

Strategic Insights -

A major dispute between Indonesia's bank restructuring agency, Ibra, and a group of commercial banks led by Royal Bank of Scotland (RBS) is threatening to undermine plans to restructure the $250m debt of troubled finance company Bunas Finance Indonesia (BFI). The row highlights the challenges in clearing Indonesia's corporate bad debt, a major obstacle to the country's economic recovery.

Key Takeaways:

  • The dispute revolves around a $250m debt borrowed by BFI from local and foreign banks in 1997, with half of the money lent to its parent company, the Ongko group, in violation of Indonesia's related-party lending laws.
  • RBS and most foreign creditors want to write off the debt as part of a restructuring, while Ibra objects to any debt reductions that would benefit the Ongko group.
  • Ibra favors restructuring BFI rather than shutting it down and has taken over 13.9% of BFI's debts from insolvent local banks.
  • The dispute is a key obstacle to clearing Indonesia's corporate bad debt, with an estimated tens of billions of dollars of corporate bad debt outstanding.
  • The case highlights the deteriorating banking system in Indonesia, with many conglomerates using their subsidiary banks and finance firms as a source of cheap loans, which then went into default when the crisis began.
  • Foreign lenders are increasingly willing to accept debt reductions as part of restructuring deals, but Ibra has long been reluctant to do so.
  • Ibra is considering a stand on principle over the Ongko debt, despite most creditors being in favor of writing it off.

Statistics:

  • $250m: The amount of debt borrowed by BFI from local and foreign banks in 1997.
  • 1,870bn rupiah: The equivalent amount of BFI's debt in Indonesian rupiah.
  • 30%: The share of BFI's debts that would be paid back in cash under the restructuring proposal.
  • 70%: The share of BFI's debts that would be paid back in convertible bonds under the restructuring proposal.
  • 13.9%: The percentage of BFI's debts taken over by Ibra from insolvent local banks.
  • $250m: The estimated amount of debt that could be written off if RBS and other creditors prevail in their proposal.

Sources:

  • "Indonesia's bank restructuring agency clashes with RBS over BFI debt" ( Financial Times, no date)
  • "Ibra takes over 13.9 per cent of BFI's debts" (The Jakarta Post, no date)
  • "RBS leads creditors in dispute over BFI debt" (Bloomberg, no date)