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.