Bank Bali mystery unsolved, while stock surges

Bank Bali gets a recapitalization plan, leaving regulators until October to smoke out those controlling the stock.

Indonesia’s controversial PT Bank Bali rose 67% today (Tuesday) – its second day of trading since its two-week suspension ended. Investors snapped up the stocks after the bank announced further details about its Rp5.36 trillion ($600 million) recapitalization plan.

Bank Bali said it would issue 66.53 million new shares in a 99-for-1 rights issue, priced at about Rp80 a share. Last month, Indonesia’s parliament finally approved the bank's recapitalization plan after Rudy Ramli, whose family once controlled the bank, promised to drop a lawsuit contesting the government’s nationalization of the lender.

Trading in Bank Bali shares was suspended on Monday when the stock rose 50%, amid frenzied bidding. When trading resumed today, the stock climbed Rp100 to Rp250, at which level the regulators suspended the stock again.

"It is not a liquid stock. It is controlled by one party – Deutsche Boerse Clearing AG,” says Mirza Adiytaswara, analyst at Indosuez WI Carr in Jakarta.

Recapitalization plan

Under Bank Bali's recapitalization plans, slated for October, government bonds will comprise 60% to 70% of total assets, analysts say. Between now and then, however, regulators are hoping to smoke out the identities of the parties behind Deutsche Boerse, the owner of 50.1% of Bank Bali. The German investor bought heavily into Bank Bali stock when the bank became entangled in a scandal over money politics last year. The Indonesian regulators have decreed that Deutsche Boerse will have no voting rights in the first round of the recapitalization programme, which means it will not be allowed to subscribe to the rights issue. So far, however, the party or parties behind Deutsche Boerse haven’t budged.

School for scandal

Bank Bali ran into into trouble in 1999 when Rp546 billion was channelled into a company controlled by Golkar, Indonesia’s ruling party at the time. According to analysts, certain key figures received commissions from Bank Bali in return for the bank obtaining funds from the Indonesian Bank Recapitalization Agency (IBRA). A scandal inevitably broke, and the government was forced to take over the bank – prompting a tussle with the bank’s owners.

The affair grew out of desperation. After the 1997-1998 financial crisis, most banks in Indonesia were in negative equity. The government gave owners a choice. If a bank’s capital was anywhere between negative equity of 25% to meeting the minimum capital ratio of 4%, then the bank owners had a chance. If the owners put up 20%, the government would make up the rest. If the bank’s capital was below negative 25%, however, the bank would be closed down – with the exception of government-owned banks.

Rudy Ramli, like every bank owner, was in a predicament. His solution was to get Standard Chartered to foot the cost of recapitalization. But once the political funds scandal broke, the UK-listed bank pulled out - leaving the government no choice but to take over Bank Bali.

But, almost as quickly, the government and Ramli were at loggerheads. In March, Jakarta’s State Administrative Court announced that the takeover of Bank Bali was illegal on procedural grounds. Ramli accepted Rp9 billion, as compensation for managing the bank since 1998 and to cover the costs of his legal advisers.