Best investor for BCA<\/p>\n
Given the fragile state of Indonesia's banking industry,
\ndespite the almost $65 billion in taxpayers' money already spent
\non its restructuring and recapitalization, it is market
\ncredibility and a good track record in bank management, not the
\nhighest price, that should become the primary criteria for
\nselecting the winning bidder for a 51 percent stake in Bank
\nCentral Asia (BCA).<\/p>\n
True, a higher price will generate more revenue for the cash-
\nstarved government. But if the equity stake is awarded to the
\nbidder offering the highest price and the reputation of the
\nsuccessful bidder does not generate public trust, BCA will remain
\nin a fragile condition as its market credibility will continue to
\ndepend mainly on the government's blanket guarantee on bank
\ndeposits and credits.<\/p>\n
Notwithstanding BCA's position as the largest retail bank in
\nthe country, with over 8 million accounts, 800 branches, 2,100
\nATMs and total assets of Rp 99 trillion (US$.9.9 billion), the
\nbank is still vulnerable. One should not forget that Rp 60
\ntrillion of the bank's assets consist of virtually illiquid bonds
\nissued by a government that is groaning under mountains of debt.
\nThe bank's loan-to-deposit ratio is only about 17.2 percent,
\nmeaning that its income is still derived largely from taxpayers'
\nmoney (bond interest).<\/p>\n
Yes, BCA is potentially a solid bank, but this potential will
\nbe meaningless if it is not developed by a highly-capable
\nmanagement team and supervised and supported by highly credible
\nshareholders. BCA is a feasible investment proposition only for
\ninvestors with a long time horizon, as it will take at least
\nthree years to develop BCA into a strong financial institution
\nthat meets international standards under Indonesia's adverse
\neconomic and political conditions.<\/p>\n
Obviously, the ideal winning bidder would be one offering the
\nhighest price and possessing a high level of market credibility
\nand a good track record in bank management. But such an ideal
\noutcome may well remain elusive, given the considerable political
\nand economic risks that banking operations currently face in this
\ncountry.<\/p>\n
Moreover, it is probably unreasonable to expect a high premium
\nprice from the transaction because the House has required that
\nthe divestment be conducted in two stages -- 30 percent in the
\nfirst stage and 21 percent in the second.<\/p>\n
This condition has made the deal much riskier, especially
\nsince the government has become notorious for failing to fully
\nmeet its commitments. Not a single bonafide investor would be
\nwilling to shell out sufficient capital to acquire a 30 percent
\nshare of BCA without also being able to control its management.<\/p>\n
If the government were rational enough to adopt confidence-
\nbuilding as its primary objective for the BCA sale, then seven of
\nthe nine shortlisted final bidders would be automatically
\nexcluded from the race.<\/p>\n
None of these seven bidders, including the three foreign-led
\nconsortia (Thailand's Dynamic Choice and Malaysian Plantation and
\nFarallon Capital of the U.S.) can demonstrate an impressive
\nrecord in international-standard bank management. Their
\nacquisition of BCA would not in any way contribute to raising
\nBCA's market credibility above the other national banks.<\/p>\n
The four locally-led consortia in this group of seven are also
\nunable to boast of any achievements in banking operations.
\nFurthermore, they are all part of business conglomerates which,
\nin the eyes of the public, would be unable to manage the bank as
\nan independent, arm's-length lender to business. The people still
\nclearly remember how excessive connected lending practices had
\ncontributed to the downfall of most major banks in 1997-1998.<\/p>\n
The market will remain jittery about a bank controlled by a
\nbusiness group, unless the blanket guarantee remains in effect.
\nBut this guarantee scheme is merely an emergency measure intended
\nto remain in force for only another one to two years, after which
\nmarket forces will be allowed to screen out unviable national
\nbanks.<\/p>\n
This leaves two worthy candidates -- Standard Chartered Bank
\nof Britain and investment company Newbridge Capital of the United
\nStates. These two bidders not only boast good records in bank
\nmanagement but have also demonstrated their long-term commitment
\nto investing in the country.<\/p>\n
Standard Chartered tried to acquire 20 percent of Bank Bali in
\n1999 but failed after the exposure of what eventually became
\nknown as the Bank Bali scandal. Newbridge, buoyed by its
\nsuccessful acquisition of an Astra International electronics
\nsubsidiary in Batam, has taken part in almost all tenders for
\nmajor state assets over the past two years, though without any
\nsuccess. Newbridge was in fact one of the two final bidders in
\nthe first BCA tender in June, which was abruptly canceled by the
\ngovernment without clear explanation.<\/p>\n
Hopefully, building international trust in BCA will become
\nthe primary criterion for selecting the winning bidder, which is
\nscheduled to be announced within the next few weeks.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/best-investor-for-bca-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}