Astra deal make or break time for IBRA's credibility<\/p>\n
By Vincent Lingga<\/p>\n
JAKARTA (JP): The competition to control the ownership of PT
\nAstra International, respected as one of the best-managed
\ncompanies in the country, held all the ingredients to end up as
\nthe most high-profile foreign investment deal this year.<\/p>\n
But instead of becoming a showcase transaction to woo back
\nforeign investors to the crisis-hit country, the deal has slipped
\ninto an acrimonious dispute pitting the Astra management against
\nthe Indonesian Bank Restructuring Agency (IBRA).<\/p>\n
Analysts have blamed IBRA, Astra management, the U.S. investor
\nconsortium Newbridge\/Gilbert as well as the securities watchdog
\n(Bapepam) for the descent into controversy.<\/p>\n
But most of the blame has been heaped on IBRA for its lack of
\ntransparency and incompetent public relations, especially in view
\nof its tarnished credibility after the Bank Bali scandal and the
\nsubsequent fiasco that scuttled its impending deal with Britain's
\nStandard Chartered Bank in December.<\/p>\n
Whatever the overriding pressure it felt to sell its 40
\npercent stake in Astra, IBRA should have treaded carefully in
\nnavigating the securities market rules.<\/p>\n
Worse still, the agency should not have acted in a high-handed
\nmanner which was widely perceived to be unfair to Astra, let
\nalone pick a fight with the Rini Soewandi-led management of
\nAstra, which the agency did on Jan. 14 with its proposal for a
\nmanagement shake-up.<\/p>\n
In taking the offensive, it raised the alarming specter of
\ncontrolling shareholders, precisely the danger that the Astra
\nmanagement wanted to avoid with its proposal to IBRA to sell its
\nstake to several different investors.<\/p>\n
But Rini herself should not have acted in such an inordinately
\ndefensive manner toward IBRA and Newbridge\/Gilbert, given the
\ncrucial role of the deal to wooing back foreign investors to
\nstrengthening the early fragile forces of the economic recovery.<\/p>\n
The Capital Market Supervisory Agency (Bapepam), which was
\nsupposed to play a facilitating role in the share transaction,
\nappeared to flip-flop, acting ambiguously and sometimes not in
\ngood faith.<\/p>\n
Bapepam should have reminded IBRA of all the securities market
\nrules and that it is bound to the legal aspects of its ownership
\nof Astra shares immediately after its plan to sell its Astra
\nshare hit the news media as early as last August.<\/p>\n
Newbridge\/Gilbert's appointment of PT Saratoga Investama
\nSedaya, which is owned by Edwin Soeryadjaya, a member of the
\nSoeryadjaya family -- Astra's former controlling and founding
\nowners -- as its local advisers, was a smart, perhaps strategic
\nmove. But it unwittingly planted seeds of suspicion against the
\nbidding investor group.<\/p>\n
Newbridge Capital\/Gilbert Global, the leaders of the American
\ninvestor group which was chosen last month by IBRA as the
\npreferred bidder for its Astra stake, may now bemoan that the
\nprocess for its well-intended investment deal has unnecessarily
\ncaused such controversy.<\/p>\n
A well-documented chronology of events, provided by IBRA and
\nlocal advisers to Newbridge\/Gilbert, showed that a semblance of a
\ncompetitive bid was actually applied to the planned deal right
\nfrom the beginning.<\/p>\n
From last August when IBRA and the investor group started the
\nearly process of their deal, they approached and consulted the
\nAstra management, coming to empathize with Astra directors,
\nNewbridge\/Gilbert advisers said.<\/p>\n
\"In fact, Newbridge\/Gilbert pledged in its Dec. 9 agreement
\nwith IBRA to retain Astra's current senior management team in its
\ncurrent position and to fully cooperate with them,\" a legal
\nadviser to the American investor group added.<\/p>\n
He said the competitive process actually began in mid-
\nSeptember when the Astra management also started negotiations
\nwith another serious bidder for an alternative transaction.<\/p>\n
Problems cropped up when IBRA, on behalf of Newbridge\/Gilbert,
\nasked for a due diligence on Astra, a normal process for a major
\nequity acquisition.<\/p>\n
Astra management, invoking securities market rules on insider
\nparties, argued that IBRA, despite its claim to own almost 40
\npercent of Astra, was officially registered as the owner of only
\n0.2 percent, far below the minimum 20 percent holding that
\nentitles a shareholder to insider and proprietary information.<\/p>\n
\"We couldn't understand why the Astra management suddenly
\nquestioned the legality of IBRA's shareholding in Astra. The same
\nmanagement did not raise any questions when IBRA attended the
\nAstra shareholders meeting on March 25, 1999,\" the legal adviser
\nsaid.<\/p>\n
He said that even though IBRA decided to abstain from the
\ndecisions adopted at the March meeting, the fact was that IBRA's
\npresence as the proxy shareholder was not questioned.<\/p>\n
The adviser also wondered why Bapepam did not act firmly and
\nquickly to help clear up the legal issues.<\/p>\n
Astra's management countered, however, that the shareholders
\nmeeting on March 25 should have been attended by shareholders
\nMohamad \"Bob\" Hasan, Anthony Salim and Usman Admadjaja, even
\nthough they pledged their holdings to IBRA in October 1998 as
\nrepayment of their debts to the central bank.<\/p>\n
\"IBRA only got the power of attorney to entitle it to
\nrepresent the shareholders on March 24,\" an Astra spokesman said
\nin referring to potential legal snags in IBRA's ownership of the
\nshares.<\/p>\n
IBRA attempted to settle the insider party issue on Dec. 10 by
\nproducing powers of attorney to represent only 28.4 percentage
\npoints of the 40 percent it claimed to own in Astra.<\/p>\n
But Newbridge\/Gilbert did not either help ease the due
\ndiligence process.<\/p>\n
The mountains of documents, historical data and projection
\nreports and the almost 600 categories of information it requested
\nfrom the Astra management for the due diligence seemed too much
\nfor such a publicly listed company, despite foreign investors'
\ndistrust in the integrity of almost all public institutions in
\nIndonesia.<\/p>\n
So elaborate and wide-ranging was the requested proprietary
\ninformation that the process became unnecessarily bogged down by
\nnegotiations on a confidentiality agreement.<\/p>\n
Understandably, the Astra management should insist on a
\nconfidentiality clause to protect the future of the company and
\nthe interests of other shareholders, and to indemnify directors
\nagainst legal consequences of disclosure of proprietary
\ninformation.<\/p>\n
The Astra management also questioned the manner in which
\nNewbridge\/Gilbert was chosen as the preferred bidder, saying the
\nprocess was not transparent.<\/p>\n
The management argued that the process should have started
\nwith an open tender offer to give other bidders a fair chance.<\/p>\n
IBRA contended that Newbridge\/Gilbert remained the strongest,
\nmost serious bidder until mid-November when the Astra management
\nadmitted failure to come up with other investors by early
\nNovember.<\/p>\n
\"Newbridge\/Gilbert has since August been the most serious
\nbidder, unrelenting in their commitment in continuing
\nnegotiations in Jakarta even when the main streets were embroiled
\nin violent demonstrations,\" the Newbridge\/Gilbert adviser
\nasserted.<\/p>\n
He said it should also be remembered that Newbridge\/Gilbert
\ndid not waver in their commitment even when the country was mired
\nin troubles.<\/p>\n
\"With so many riots, violent demonstrations and political
\nuncertainty, Indonesia was then like a pariah in the perception
\nof the international community, especially after the
\nInternational Monetary Fund technically stopped its bailout
\nprogram in September after the disclosure of the high-profile
\nBank Bali scandal,\" the legal consultant added.<\/p>\n
He said Newbridge\/Gilbert should naturally be given several
\nadvantages because they spent much on the negotiations and
\npreparations for the due diligence.<\/p>\n
Local advisers to Newbridge\/Gilbert estimate the investor
\ngroup will spend at least $2.5 million for the whole process,
\nincluding the due diligence.<\/p>\n
\"This investment should naturally entitle the investor group
\nto some advantages, including the right to match the prices
\noffered by other bidders who will be invited in the second round
\nof bidding after the completion of the due diligence,\" the
\nNewbridge\/Gilbert adviser argued.<\/p>\n
IBRA argued that the second round of bidding, scheduled for
\nlate February or March, will be a tender offer process in the
\nreal sense, as the agency will solicit offers from other
\ninvestors to maximize the selling price.<\/p>\n
IBRA said the second round (right to shop) was also designed
\nto deter Newbridge\/Gilbert, as the preferred bidder, from making
\nwhat investors usually call a low-ball binding bid because it
\nmight be countered by other investors with better offer prices.<\/p>\n
IBRA and Newbridge\/Gilbert advisers therefore suspected that
\nthe Astra management's seeming resistance to the due diligence
\nwas prompted by fears among the directors that the process might
\ndiscover unsavory facts about the company.<\/p>\n
They pointed to Astra's questionable transactions with the
\nNusamba foundation and several companies owned by Bob Hasan, the
\nmost politically powerful businessman in Indonesia until
\npresident Soeharto's downfall in May 1998.<\/p>\n
Bob Hasan became Astra's commissioner (supervisor) in the mid-
\n1990s after the Soeryadjayas were forced in 1993 to sell their
\nstake to settle the huge debts of the bankrupt Summa group, owned
\nby Edward Soeryadjaya.<\/p>\n
The Nusamba foundation was then controlled jointly by Bob
\nHasan and Soeharto.<\/p>\n
Among the supposedly questionable deals was a Rp 400 billion
\n(US$200 million on the exchange rate prevailing in early 1997)
\nloan extended by Federal International Finance (FIF), a financial
\nunit of Federal Motor, Astra's motorcycle subsidiary, to Nusamba.
\nHowever, FIF asserted on Friday that the transaction was a normal
\nfinancial deal and the loan was fully repaid by Nusamba.<\/p>\n
Moreover, Astra claimed the transaction was closed when the
\nAstra management was still led by Tedy P. Rachmat, who was
\nreplaced by Rini in mid-1998.<\/p>\n
Rini has repeatedly insisted that as a publicly listed company
\nwhich is classified as a blue-chip corporation on the Jakarta
\nStock Exchange, Astra has always been audited by independent
\npublic accountants and subject to stringent disclosure
\nrequirements.<\/p>\n
Despite the spat over the legal technicalities for the due
\ndiligence, most analysts regretted the offensive stance taken by
\nIBRA chief Cacuk Sudarijanto on Jan. 14 when he requested that
\nAstra's extraordinary shareholders meeting in February replace
\nthe management.<\/p>\n
IBRA, they said, should realize that it became a major
\nshareholder in Astra only by accident, and its divestment of
\nAstra would not bring in any fresh funds to the company, which is
\nnow struggling to overcome its huge debt burdens.<\/p>\n
Analysts argued that asking for replacement of the Astra
\nmanagement simply to facilitate a due diligence was out of line,
\nespecially because IBRA would no longer be part of the company
\nwhen the transaction was completed.<\/p>\n
Analysts asserted that Astra -- the country's largest
\nautomobile company with large stakes in agribusiness and
\nfinancial services -- has always been liked by investors and the
\nmarket in general precisely for its strong management.<\/p>\n
They noted that the quick and impressive recovery of Astra
\nfrom a Rp 2.43 trillion loss in 1998 to a profit of Rp 650
\nbillion last year should be attributed to the hard work and
\nleadership of the management.<\/p>\n
The price of Astra shares would not have picked up so strongly
\nfrom as low as Rp 225 in 1998 to around Rp 3,700 now were Astra's
\nmanagement unprofessional or involved in questionable
\ntransactions, as Newbridge\/Gilbert advisers have alleged.<\/p>\n
\"Most impressive of all is Astra's success in restructuring
\nabout $1 billion in foreign debts last year,\" an analyst said,
\nadding it was one of the few in the debt-ridden private sector.<\/p>\n
A joint business survey by the Swa business magazine and Asian
\nMarket Intelligence elected Rini Soewandi The best Chief
\nExecutive Officer 2000 and the Hong Kong-based Asiamoney magazine
\nalso voted Astra International Indonesia's Best Managed Company
\n1999.<\/p>\n
The problem now is how to complete the sale of IBRA's stake in
\nAstra without any backlash against the company itself, given
\nIBRA's aggressive move against the Astra management.<\/p>\n
The transaction is so crucial to the state budget, to the
\neffort to win back the trust of foreign investors and to the
\nrestoration of IBRA's credibility that another botched deal could
\ndevastate nascent foreign investor confidence in Indonesia.<\/p>\n
Analysts hope IBRA, other shareholders as well as the Astra
\nmanagement will think both of the future good of the national
\neconomy and of Astra when they exercise their votes at the Feb. 8
\nextraordinary shareholders meeting.<\/p>",
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