The Bank Bali fiasco<\/p>\n
Several analysts and members of the House of Representatives
\nhave welcomed Standard Chartered Plc.'s withdrawal from its Bank
\nBali investment deal. They argued that the move would open up
\nopportunities for new investors to buy stakes in the bank after
\nits rights issue between Jan. 6 and Jan 12. But the Indonesian
\nBank Restructuring Agency (IBRA), foreign analysts, and most
\nother officials are greatly worried that Standard Chartered's
\ndecision will spook foreign investors intending to acquire
\nIndonesian assets.<\/p>\n
After Standard Chartered's withdrawal, the politically charged
\nscandal, an employee revolt, negative publicity over the past
\nfive months and a lawsuit pending at the State Administrative
\nCourt, can the Bank Bali name remain attractive as an investment
\nproposition? What is the value of a bank that lacks public trust
\nand cooperative employees?.<\/p>\n
These questions are certainly looming in the Bank Bali rights
\nissue, in which it is hoped that about Rp 4.03 trillion (US$560
\nmillion) in recapitalization funds will be raised to elevate the
\nbank's capital adequacy ratio (CAR) to the minimum 4 percent.<\/p>\n
The Standard Chartered move marks the latest, but surely not
\nthe last, episode in the eight-month Bank Bali saga. The saga
\nbegan in late April as a landmark deal by the first foreign
\ninvestor willing to stake funds in Indonesia's crippled banking
\nindustry. But the deal later developed into a politically charged
\nscandal which implicated several ministers, senior officials and
\nGolkar party leaders.<\/p>\n
It is true that until the monetary crisis hit Indonesia in
\nAugust 1997 Bank Bali was rated as one of the best-managed banks
\nin the country, and the only major bank that was not part of a
\nwidely diversified conglomerate. But as their capital became
\nnegative, the economic woes drove all major private and state
\nbanks, including Bank Bali, into technical bankruptcy.<\/p>\n
It is no wonder that when the majority owner -- the Rudy Ramli
\nfamily -- experienced difficulties in raising capital to meet the
\nminimum CAR level, six foreign investors, including ABN AMRO, GE
\nCapital and Citibank, expressed an interest in holding a stake in
\nthe bank and started negotiations in September, 1998.<\/p>\n
Standard Chartered, which only joined the negotiations with
\nBank Bali in late March, was unexpectedly successful in clinching
\na deal with Rudy Ramli. On April 23 this year, the two signed an
\nagreement that would allow the British bank to have a 20 percent
\nstake in the bank. Negotiations progressed smoothly until
\nStandard Chartered cried foul in July after uncovering during a
\nthree-month due diligence, an "improper" Rp 546 billion payment
\nmade in early June by Bank Bali. The payment was made to a
\npolitically well-connected company as a commission to recover Rp
\n904 billion in interbank claims from IBRA.<\/p>\n
The fund scandal immediately escalated into a political
\nscandal and prompted IBRA to pit Bank Bali-embroiled Rudy on one
\nside and IBRA and Standard Chartered on the other in a public-
\nopinion war. Both leveled accusations of improper conduct at each
\nother. More information and documents were leaked regarding the
\nimplication of officials and politicians in the scandal, the
\ntakeover and the investment and management agreements between
\nIBRA and Standard Chartered.<\/p>\n
Over time, Rudy built up a broader sympathy base and was
\nperceived by the public as the victim of a high-level political
\nconspiracy. Most employees who were sympathetic to Rudy revolted
\nin October. In early November, they booted out the Standard
\nChartered managers from the bank's headquarters.<\/p>\n
But with Standard Chartered now out of the game, the coast is
\nfar from clear for Bank Bali's recapitalization. The bank still
\ncarries a potential "land mine" which will deter new foreign
\ninvestors from buying stocks. The mystery buyer, which
\naccumulated between May and early August through German clearing
\nhouse Deutsche Boerse almost 40 percent of Bank Bali's shares,
\nremains unidentified, even after the scandal's revelation.<\/p>\n
The securities commission, Bapepam, which is supposed to
\nconduct an insider trading investigation into the mystery buyer
\nhas yet to come up with conclusive results. In a highly
\nquestionable statement, the commission recently announced that
\nthe 40 percent stockholding was owned by about 1,200 small,
\nindependent investors.<\/p>\n
If the mystery investors and the Rudy Ramli family, which
\nstill owns more than 18 percent of the bank, exercise their
\npreemptive rights, IBRA, as a standby buyer of the rights shares,
\nmay find it difficult to quickly sell its shares as planned
\nbecause new investors will not be assured of management control.<\/p>\n
Given this uncertainty and Bank Bali's battered condition, we
\nwould not be surprised if the next episode of the Bank Bali saga
\nends with the bank's wholesale nationalization -- at the
\ntaxpayers' expense.<\/p>",
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"sponsor": "Okusi Associates",
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