JAKARTA, Indonesia: June 26 (Xinhua) — Indonesian central bank, Bank Indonesia (BI), has spelled out three main requirements for investors to be able to own more than 40 percent and up to 90 percent of stakes in banks.
Bank Indonesia deputy governor Halim Alamsyah said in the Bank Indonesia Regulation on Banking Ownership Structures, BI differentiated three categories — ownership of up to 40 percent, up to 30 percent and up to 20 percent.
However, Halim said exceptions were permitted, and investors could have more than 40 percent of the shares in a bank but the central bank would first study how the bank managed itself, whether it was capable and whether there were benefits to the economy.
“Banks that can apply for more than 40 percent (of shares) have to meet three requirements. First it should be healthy, second it should be listed and third the bank agrees to buy debt certificates that can be converted into equity,” Halim said recently.
The third requirement was linked to the Basel III regulations on the principles of bail in or buffer conservation. It is to prevent the use of public money to help the bank if it comes into trouble.
“The principle is that it should help itself first. Therefore the potential owner should be willing to buy debt certificates that can be converted into shares,” he said as quoted by the Jakarta Globe.
Potential investors wanting to buy more than 40 percent of the shares in a banks have to sign the commitment to provide backup reserves in the form of Contingent Convertibles Bonds (CoCo Bonds).
He said that if an investor bought a bank for 500 billion rupiah with more than a 40 percent of stake, the investor had at the same time the obligation to buy or issue subdebts that can be converted into shares.
Therefore besides injecting capital, investors have to provide subdebts to the bank they purchased.
“If the investor buys it, the subdebt in the long term should be converted into shares, so that the composition of the shares rises. Therefore the value of the purchase is not yet net added with the subdebts. In reality, this is similar to an escrow account,” Halim added. (Xinhua)
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