Astra deal make or break time for IBRA's credibility

Astra deal make or break time for IBRA's credibility

By Vincent Lingga

JAKARTA (JP): The competition to control the ownership of PT
Astra International, respected as one of the best-managed
companies in the country, held all the ingredients to end up as
the most high-profile foreign investment deal this year.

But instead of becoming a showcase transaction to woo back
foreign investors to the crisis-hit country, the deal has slipped
into an acrimonious dispute pitting the Astra management against
the Indonesian Bank Restructuring Agency (IBRA).

Analysts have blamed IBRA, Astra management, the U.S. investor
consortium Newbridge/Gilbert as well as the securities watchdog
(Bapepam) for the descent into controversy.

But most of the blame has been heaped on IBRA for its lack of
transparency and incompetent public relations, especially in view
of its tarnished credibility after the Bank Bali scandal and the
subsequent fiasco that scuttled its impending deal with Britain's
Standard Chartered Bank in December.

Whatever the overriding pressure it felt to sell its 40
percent stake in Astra, IBRA should have treaded carefully in
navigating the securities market rules.

Worse still, the agency should not have acted in a high-handed
manner which was widely perceived to be unfair to Astra, let
alone pick a fight with the Rini Soewandi-led management of
Astra, which the agency did on Jan. 14 with its proposal for a
management shake-up.

In taking the offensive, it raised the alarming specter of
controlling shareholders, precisely the danger that the Astra
management wanted to avoid with its proposal to IBRA to sell its
stake to several different investors.

But Rini herself should not have acted in such an inordinately
defensive manner toward IBRA and Newbridge/Gilbert, given the
crucial role of the deal to wooing back foreign investors to
strengthening the early fragile forces of the economic recovery.

The Capital Market Supervisory Agency (Bapepam), which was
supposed to play a facilitating role in the share transaction,
appeared to flip-flop, acting ambiguously and sometimes not in
good faith.

Bapepam should have reminded IBRA of all the securities market
rules and that it is bound to the legal aspects of its ownership
of Astra shares immediately after its plan to sell its Astra
share hit the news media as early as last August.

Newbridge/Gilbert's appointment of PT Saratoga Investama
Sedaya, which is owned by Edwin Soeryadjaya, a member of the
Soeryadjaya family -- Astra's former controlling and founding
owners -- as its local advisers, was a smart, perhaps strategic
move. But it unwittingly planted seeds of suspicion against the
bidding investor group.

Newbridge Capital/Gilbert Global, the leaders of the American
investor group which was chosen last month by IBRA as the
preferred bidder for its Astra stake, may now bemoan that the
process for its well-intended investment deal has unnecessarily
caused such controversy.

A well-documented chronology of events, provided by IBRA and
local advisers to Newbridge/Gilbert, showed that a semblance of a
competitive bid was actually applied to the planned deal right
from the beginning.

From last August when IBRA and the investor group started the
early process of their deal, they approached and consulted the
Astra management, coming to empathize with Astra directors,
Newbridge/Gilbert advisers said.

"In fact, Newbridge/Gilbert pledged in its Dec. 9 agreement
with IBRA to retain Astra's current senior management team in its
current position and to fully cooperate with them," a legal
adviser to the American investor group added.

He said the competitive process actually began in mid-
September when the Astra management also started negotiations
with another serious bidder for an alternative transaction.

Problems cropped up when IBRA, on behalf of Newbridge/Gilbert,
asked for a due diligence on Astra, a normal process for a major
equity acquisition.

Astra management, invoking securities market rules on insider
parties, argued that IBRA, despite its claim to own almost 40
percent of Astra, was officially registered as the owner of only
0.2 percent, far below the minimum 20 percent holding that
entitles a shareholder to insider and proprietary information.

"We couldn't understand why the Astra management suddenly
questioned the legality of IBRA's shareholding in Astra. The same
management did not raise any questions when IBRA attended the
Astra shareholders meeting on March 25, 1999," the legal adviser
said.

He said that even though IBRA decided to abstain from the
decisions adopted at the March meeting, the fact was that IBRA's
presence as the proxy shareholder was not questioned.

The adviser also wondered why Bapepam did not act firmly and
quickly to help clear up the legal issues.

Astra's management countered, however, that the shareholders
meeting on March 25 should have been attended by shareholders
Mohamad "Bob" Hasan, Anthony Salim and Usman Admadjaja, even
though they pledged their holdings to IBRA in October 1998 as
repayment of their debts to the central bank.

"IBRA only got the power of attorney to entitle it to
represent the shareholders on March 24," an Astra spokesman said
in referring to potential legal snags in IBRA's ownership of the
shares.

IBRA attempted to settle the insider party issue on Dec. 10 by
producing powers of attorney to represent only 28.4 percentage
points of the 40 percent it claimed to own in Astra.

But Newbridge/Gilbert did not either help ease the due
diligence process.

The mountains of documents, historical data and projection
reports and the almost 600 categories of information it requested
from the Astra management for the due diligence seemed too much
for such a publicly listed company, despite foreign investors'
distrust in the integrity of almost all public institutions in
Indonesia.

So elaborate and wide-ranging was the requested proprietary
information that the process became unnecessarily bogged down by
negotiations on a confidentiality agreement.

Understandably, the Astra management should insist on a
confidentiality clause to protect the future of the company and
the interests of other shareholders, and to indemnify directors
against legal consequences of disclosure of proprietary
information.

The Astra management also questioned the manner in which
Newbridge/Gilbert was chosen as the preferred bidder, saying the
process was not transparent.

The management argued that the process should have started
with an open tender offer to give other bidders a fair chance.

IBRA contended that Newbridge/Gilbert remained the strongest,
most serious bidder until mid-November when the Astra management
admitted failure to come up with other investors by early
November.

"Newbridge/Gilbert has since August been the most serious
bidder, unrelenting in their commitment in continuing
negotiations in Jakarta even when the main streets were embroiled
in violent demonstrations," the Newbridge/Gilbert adviser
asserted.

He said it should also be remembered that Newbridge/Gilbert
did not waver in their commitment even when the country was mired
in troubles.

"With so many riots, violent demonstrations and political
uncertainty, Indonesia was then like a pariah in the perception
of the international community, especially after the
International Monetary Fund technically stopped its bailout
program in September after the disclosure of the high-profile
Bank Bali scandal," the legal consultant added.

He said Newbridge/Gilbert should naturally be given several
advantages because they spent much on the negotiations and
preparations for the due diligence.

Local advisers to Newbridge/Gilbert estimate the investor
group will spend at least $2.5 million for the whole process,
including the due diligence.

"This investment should naturally entitle the investor group
to some advantages, including the right to match the prices
offered by other bidders who will be invited in the second round
of bidding after the completion of the due diligence," the
Newbridge/Gilbert adviser argued.

IBRA argued that the second round of bidding, scheduled for
late February or March, will be a tender offer process in the
real sense, as the agency will solicit offers from other
investors to maximize the selling price.

IBRA said the second round (right to shop) was also designed
to deter Newbridge/Gilbert, as the preferred bidder, from making
what investors usually call a low-ball binding bid because it
might be countered by other investors with better offer prices.

IBRA and Newbridge/Gilbert advisers therefore suspected that
the Astra management's seeming resistance to the due diligence
was prompted by fears among the directors that the process might
discover unsavory facts about the company.

They pointed to Astra's questionable transactions with the
Nusamba foundation and several companies owned by Bob Hasan, the
most politically powerful businessman in Indonesia until
president Soeharto's downfall in May 1998.

Bob Hasan became Astra's commissioner (supervisor) in the mid-
1990s after the Soeryadjayas were forced in 1993 to sell their
stake to settle the huge debts of the bankrupt Summa group, owned
by Edward Soeryadjaya.

The Nusamba foundation was then controlled jointly by Bob
Hasan and Soeharto.

Among the supposedly questionable deals was a Rp 400 billion
(US$200 million on the exchange rate prevailing in early 1997)
loan extended by Federal International Finance (FIF), a financial
unit of Federal Motor, Astra's motorcycle subsidiary, to Nusamba.
However, FIF asserted on Friday that the transaction was a normal
financial deal and the loan was fully repaid by Nusamba.

Moreover, Astra claimed the transaction was closed when the
Astra management was still led by Tedy P. Rachmat, who was
replaced by Rini in mid-1998.

Rini has repeatedly insisted that as a publicly listed company
which is classified as a blue-chip corporation on the Jakarta
Stock Exchange, Astra has always been audited by independent
public accountants and subject to stringent disclosure
requirements.

Despite the spat over the legal technicalities for the due
diligence, most analysts regretted the offensive stance taken by
IBRA chief Cacuk Sudarijanto on Jan. 14 when he requested that
Astra's extraordinary shareholders meeting in February replace
the management.

IBRA, they said, should realize that it became a major
shareholder in Astra only by accident, and its divestment of
Astra would not bring in any fresh funds to the company, which is
now struggling to overcome its huge debt burdens.

Analysts argued that asking for replacement of the Astra
management simply to facilitate a due diligence was out of line,
especially because IBRA would no longer be part of the company
when the transaction was completed.

Analysts asserted that Astra -- the country's largest
automobile company with large stakes in agribusiness and
financial services -- has always been liked by investors and the
market in general precisely for its strong management.

They noted that the quick and impressive recovery of Astra
from a Rp 2.43 trillion loss in 1998 to a profit of Rp 650
billion last year should be attributed to the hard work and
leadership of the management.

The price of Astra shares would not have picked up so strongly
from as low as Rp 225 in 1998 to around Rp 3,700 now were Astra's
management unprofessional or involved in questionable
transactions, as Newbridge/Gilbert advisers have alleged.

"Most impressive of all is Astra's success in restructuring
about $1 billion in foreign debts last year," an analyst said,
adding it was one of the few in the debt-ridden private sector.

A joint business survey by the Swa business magazine and Asian
Market Intelligence elected Rini Soewandi The best Chief
Executive Officer 2000 and the Hong Kong-based Asiamoney magazine
also voted Astra International Indonesia's Best Managed Company
1999.

The problem now is how to complete the sale of IBRA's stake in
Astra without any backlash against the company itself, given
IBRA's aggressive move against the Astra management.

The transaction is so crucial to the state budget, to the
effort to win back the trust of foreign investors and to the
restoration of IBRA's credibility that another botched deal could
devastate nascent foreign investor confidence in Indonesia.

Analysts hope IBRA, other shareholders as well as the Astra
management will think both of the future good of the national
economy and of Astra when they exercise their votes at the Feb. 8
extraordinary shareholders meeting.