The sale of Bank Central Asia has caused a stir. Of the final bidders for Indonesia’s leading retail bank, Standard Chartered was believed to be the favourite. However, the Indonesian Bank Restructuring Agency (Ibra) has announced that the Farallon Capital consortium – a US investment firm – has won the bid to buy a total 51% stake in the bank.
Standard Chartered was the market’s preferred candidate. It would have brought banking experience, new products and its knowledge of the emerging markets to BCA. But many of Indonesia’s bankers are not surprised that Farallon has won.
Standard Chartered’s final bidding price is believed to have been Rp1,800 a share, compared with Farallon’s offer of Rp1,775 a share. Indeed the minister for state-owned enterprises in Indonesia said at a press conference that Standard Chartered made the highest bid. However, price was only half of the overall bidding criteria. The remaining 50% was based on consortium structure, the proposed business plan for the future of BCA and adherence to the terms and conditions in the sale and purchase agreement.
Standard Chartered claims that, among others, it was approached by Ibra to review its original bid. But the bank says: “The decision was made by the minister for state-owned enterprises [Laksamana Sukardi] and his committee before the adjustments were made.” Thus, the decision was made on the original bids which were submitted by January 28.
It appears that Standard Chartered’s bid had too many strings attached, while Farallon’s was more straightforward and less demanding. Standard Chartered says that as part of its original bid it wanted money held in escrow – something Ibra took issue with. It is also said that Standard Chartered wanted a large management fee, in addition to 51% ownership, and that it wanted BCA’s computer contracts handed over to its partner, PT Berca Indonesia. A banker says: “Standard’s offer was just too complicated for an Indonesian deal.”
In selling BCA, Ibra has fulfilled its agreement to the IMF, if not quite in the manner the fund may have hoped.
Although the industry feels that Standard Chartered would have been a positive step for BCA, many can see why Farallon was chosen. In selecting Farallon Ibra has kept management of the bank under local control. Prior to the announcement, when it was believed that Standard Chartered would be successful, there was a protest march by BCA employees. Since Ibra has announced the winner, there has not been a peep from them. One banker says: “It gives local interests a chance to get it back under their own control.”
If Standard Chartered had been successful, managing control of the bank would have been in the hands of foreigners. Farallon’s win means local management will remain in the driver’s seat. Additionally, unlike Standard Chartered, Farallon is likely to exit the bank within the next five years rather than maintain long-term interests.
One of Ibra’s main concerns was to prevent BCA’s original owners, the Salim Group, from regaining a high stake in the bank. The government forced Salim to relinquish control during the Asian crisis as it believed the group was running the bank inappropriately. Many remain sceptical about Salim’s involvement in Farallon’s bid.
Farallon is led by Farindo Holdings, a joint venture between Farallon and Alaerka Investment. Alaerka Investment is owned by the Hartono family’s PT Djarum, a private Indonesian cigarette producer.
One banker based in Indonesia believes it is unlikely that Salim had any involvement in the bid by Farallon. He says: “The Djarum group is so wealthy that it has no need for the Salim Group.”
However, an Indonesia banking analyst believes that the Hartono family has close ties with the Salim Group and that it is not a question of money but rather a question of favours.
Another key reason for Farallon’s success is the agreement it made with Deutsche Bank. The bank admits that it has an agreement with Farallon to advise on risk management for BCA. Hubert Neiss, as chairman of Deutsche Bank Asia and former director of IMF Asia-Pacific, brought to Farallon an in-depth understanding of the IMF’s requirements and Asian markets and thus has led a successful lobby on the consortium’s behalf.
