| Bank Bali’s deal provoked anger | ||||||
Foreign investors have little interest in Indonesia. The country is so far off the radar screen for such banks as HSBC, Salomon Smith Barney and Deutsche Bank that research analysts specializing in the region no longer cover it.
Yet, even after a disastrous attempt to buy Bank Bali in 1999, Standard Chartered is again looking to buy an Indonesian bank. Those keeping an eye on Indonesia are excited – if things go to plan foreign investor confidence should rise.
Indonesia’s government is selling off shares in Bank Central Asia (BCA). “The sale process consists of a 30% stake in the bank to be sold immediately and a further 21% stake to be sold pursuant to exercise of an option,” according to the Indonesian Bank Restructuring Agency (Ibra). The exercise price of the option will begin at the same price per share as the 30% stake and will increase over the year at a rate of 18%.
Standard Chartered is one of four investors accepted by Ibra in the final bid for BCA shares. The only other foreign investor that made the final cut is Farallon Capital in the US. The remaining two bidders are Indonesian Batik Cooperatives Association (GKBI) and Bank Mega.
“You would get products from an international bank that you could just plug in, like you plug your stereo into the wall, and create beautiful music, meaning more money,” says one banker. The government would surely prefer a strategic investor with long-term interests in the bank rather than a financial investor that would build the bank up only to have it sold off again. The obvious choice seems to be Standard Chartered.
Nonetheless, the success of either foreign bidder should improve foreign investor confidence. “You might get more positive sentiment about the banks than we’ve had in years,” says one banker.
However, it will take more than a successful sale to convince overseas investors this time. Standard Chartered’s disaster with Bank Bali sent confidence through the floor.
After Standard Chartered had agreed to buy a 20% stake in the bank its employees protested outside its headquarters. “We went in on a management contract and during that process things didn’t work out and we agreed with Ibra to withdraw,” says a Standard Chartered spokesman.
Some analysts are surprised, then, that Standard Chartered is involved in the bid for BCA. The spokesman says: “It shows we’ve been fairly consistent in Indonesia. It fits our strategy of growing in the emerging markets.” Analysts agree, saying that Standard Chartered has deep roots in Indonesia, having been there for nearly 140 years.
The sale of BCA has had a few hiccups since it was announced last year. The sale of a 30% stake was cancelled last summer, just after Megawati Sukarnoputri came to power and there was a change in chairmanship at Ibra. “They let the wheels fall off the cart,” a disappointed banker says.
Unacceptably low bids and the suspicion that the Salim Group, the bank’s original owner, was involved in the bid were the official reasons for the cancellation. The political climate was unfavourable and there was little interest, as a controlling stake was not on offer. Less charitable comment suggests that Megawati and the Ibra chairman wanted to take credit for a successful sale initiated by them in the future.
Ibra and the Indonesian government are eager to prevent the Salim Group from buying shares in the bank. During the Asian crisis, Salim agreed to surrender all its assets so the government would bail out BCA. The government was eager to oust Salim, which it believed was running BCA inappropriately. September figures show Salim still has a 7.11% stake.
The cancellation of the sale did not instil foreign investors with confidence. Not surprisingly, then, most bidders are consortia. Standard Chartered is also looking for partners. As Ibra says, Standard Chartered has been accepted “with a purpose to establish a consortium with Government of Singapore Investment Corp, Prudential and BT Berca Indonesia”.
Liny Halim, banking analyst at ING Barings, says teaming up will lower Standard Chartered’s exposure. If the bank were to go it alone it would have to consolidate BCA’s balance sheet onto their books and take on all its staff, she says, adding: “Due to Indonesia’s high risk premium, a majority ownership in an Indonesian bank may also negatively affect Standard Chartered’s credit rating.”
BCA is considered the best retail franchise in Indonesia. It is the third-largest bank by total assets and its NPL ratio was 4.12% as of September. This is extremely low compared with the average of the 10 largest local banks, 12.56%. Ibra cleaned the majority of the bank’s loans out before it was transferred to Bank Indonesia in 2000. One banker says: “They also don’t have a lot of lurking credit problems. As you go forward, their bottom-line profits are more likely to stay high because they won’t have to write off too many bad loans.”
BCA has the third-highest level of net profit in the banking sector, behind Bank Mandiri and Citibank. With 794 branches, compared with Citibank’s handful, there is an opportunity for an investor willing to make a lot of money.
If Standard Chartered is successful, and eventually obtains the total 51%, it will also be the first time a foreign bank has held a controlling stake in an Indonesian bank, excluding joint ventures. The only other foreign bank that has divulged owning shares in an Indonesian retail bank is ANZ Bank of Australia. ANZ has a minority stake in Panin bank and is said to be looking to divest.
If the BCA transaction goes smoothly and the successful bidder does not face any subsequent problems, such as those that confronted Standard Chartered when it tried to acquire Bank Bali, Ibra and the Indonesian government will have reason to be rather pleased with themselves. The sale of the stake in BCA would signal the first real move towards a commitment to the IMF to reprivatize the Indonesian banking sector.
