Threats to the BCA sale<\/p>\n
Bank Central Asia (BCA), Indonesia's largest retail bank, is
\ncertainly the most controversial of the US$ 65 billion-worth of
\nassets that were taken over by the Indonesian Bank Restructuring
\nAgency (IBRA) amid the country's worst-ever banking crisis in
\n1997-1999.<\/p>\n
BCA's initial public offering of 22.50 percent of its shares
\nwas postponed several times before it was finally launched in
\nMay, 2000. Its secondary issue last July left behind allegations
\nof price manipulation. Its sale to strategic investors ended in
\ntatters last August as only two investors, neither of them a
\nbank, submitted bids.<\/p>\n
The second bid to sell the government's 51 percent stake in
\nthe bank was launched late last year in what most analysts,
\nincluding the International Monetary Fund, acclaimed to be a
\ntransparent and fair bidding process. It has now reached the last
\nstage of selecting the winner.<\/p>\n
However, the heightening controversy, the swirling allegations
\nof unfair treatment of bidders and a threat by employees to
\nrevolt against the strategic sale of BCA, could still abort what
\nhas long been expected to be the deal of the year.<\/p>\n
What went wrong?<\/p>\n
First of all, we think, the government failed to develop a
\npositive climate of public opinion for the deal. It miserably
\nfailed to implement an effective communications campaign to brief
\nthe general public, notably the bidders and BCA stakeholders, on
\nthe technicalities of the step-by-step process of the bidding.<\/p>\n
Many issues that caused heated controversy seemed to be
\ntriggered by an inadequate knowledge of the technical details on
\nthe requirements that had to be met and the numerous steps of the
\nbidding process that had to be passed by bidders, as well as the
\nrights of the government along the way.<\/p>\n
We realize that the factor of confidentiality, which binds the
\ngovernment in its dealings with the bidders, imposes restrictions
\non what it can disclose while the bidding process is still under
\nway.<\/p>\n
But detailed, candid explanations, for example, about how the
\nsecrecy of the bidding documents is safeguarded, why the fit-and-
\nproper test conducted by the central bank is so vital, why a
\nbidder that can bring in synergy is so crucial for the long-term
\ngood of BCA, should help enlighten the public on the objectives,
\ntransparency and fairness of the transaction.<\/p>\n
Also damagingly lacking within the information campaign are
\nclear and strongly built points of argument to help the public
\ncomprehend why the government has had to divest its stake in BCA
\nand why high credibility and professional integrity and
\ncompetence in the banking industry are much more important than
\nthe bidding price or the nationality of the bidders.<\/p>\n
A properly informed public could understand and accept why two
\nof the four final bidders -- the GKBI cooperatives and Bank
\nGlobal-led (I thought it was Bank Mega-led) consortiums -- that
\nhappen to be Indonesian companies, failed to pass the central
\nbank's fit-and-proper test and had to exit the race.<\/p>\n
What the government is now facing is an inadequately informed
\npublic that is highly vulnerable to rumors or wild allegations.
\nThis, in turn, will put the government on the defensive, forcing
\nit to react with fragmented information any time a rumor
\ncirculates, but never able to put the whole issue in its proper,
\ncomplete perspective.<\/p>\n
The fact that only two bidders -- Farallon investment company
\nof the United States and Standard Chartered Bank of the UK -- got
\nas far as the final round made the competition appear not
\nentirely fair. Measured against the most important requirements
\n-- high credibility, professional integrity and competence in the
\nbanking industry -- the contest now seems unintentionally to have
\nbeen lop-sided in favor of Standard Chartered.<\/p>\n
But the controversy and the possibility of several bad losers
\ntrying to discredit the whole bidding process are not the only
\ndelicate issues the government has to resolve in the final
\nprocess of the bidding.<\/p>\n
Threats by trade union leaders at BCA to prevent the bank from
\nbeing sold to foreign investors could still sabotage the deal. It
\nis not yet too late for the government and BCA's management to
\nenlighten its employees on the great benefits of the transaction
\nto the bank, to their future careers as well as to the banking
\nindustry in general.<\/p>\n
BCA is indeed the largest processing and settlement bank, with
\nmore than 8 million accounts, 800 branches, over 2,100 ATMs and
\ntotal assets of almost Rp 100 trillion ($9.5 billion) as of last
\nyear. But, like all other major national banks, BCA is still
\nfragile, as Rp 58 trillion of its assets consist of illiquid
\ngovernment bonds and its loan portfolio is largely
\nunderdeveloped, with a loan-to-deposit ratio of only about 17
\npercent.<\/p>\n
It is precisely because of this fragility that BCA's new
\ncontrolling owners must be highly credible and respectable within
\nthe banking industry. Only investors with such an impeccable
\ntrack record would be able to help strengthen market confidence
\nin the bank as an institution of trust.<\/p>\n
But most strategically, a fair and transparent BCA sale will
\njump-start the process of restoring investor confidence in the
\ncountry, and a privatized BCA with an international standard of
\noperations will speed up the restructuring of the national
\nbanking industry.<\/p>",
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"sponsor": "Okusi Associates",
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