Bank Bali deal soon finalized SCB: UK bank

JAKARTA (JP): Standard Chartered Bank of the UK is confident it will be able to finalize its plan to acquire 20 percent of publicly listed Bank Bali by the end of the month.

The chief executive of the bank's Indonesian operation, David Nicholas Hawkins, said here on Thursday that progress in the acquisition process was running as scheduled.

"We're on schedule. We're in integration planning with Bank Bali and keeping our staff and their staff informed of the progress," Hawkins said after a seminar on investment prospects in Indonesia organized by the bank.

He said Standard Chartered had until July 22 to complete the due diligence on Bank Bali and finalize necessary documents.

Hawkins ruled out the possibility of the deal falling through because the due diligence process went well.

Standard Chartered agreed in April to inject approximately US$56 million into Bank Bali to finance 20 percent of the bank's recapitalization funding requirement. The remainder will be provided by the government through the issuance of bonds.

Based on a due diligence audit conducted in 1998, Bank Bali needed Rp 2.4 trillion to lift its capital adequacy ratio (CAR) to the minimum 4 percent level set by the government. CAR is the ratio of equity capital to risk-weighted assets.

The deal represents the first foreign investor participation in the recapitalization of the country's battered banking sector.

Standard Chartered, which has been doing business in Indonesia for 130 years, outbid an earlier offer from GE Capital of the U.S.

Under the terms of the agreement, Standard Chartered will acquire 20 percent of Bank Bali and take over management control.

Hawkins said Bank Bali remained under its established management.

"Management control (by Standard Chartered) will only take place after the signing of the definite documentation," he said.

Standard Chartered's chief treasury economist Tim Fox said in the seminar that it was the right time for foreign investors to return to Indonesia to take advantage of the signs of economic recovery.

"They have to make their judgments now, or they will be late," he said.

He listed signs of economic stabilization as the strengthening of the rupiah, gradually increasing public and private consumption, rising fixed capital formation and the growing account surplus, especially concerning oil exports.

"The continuing fall in interest rates and improvement of the country's balance of payments will lead to the return of foreign investment."

Despite the signs of recovery, Fox predicted that the country's Gross Domestic Product (GDP) would remain in negative territory this year.

This year's GDP would be minus 2 percent before growing by 2.5 percent in 2000, he said, adding that the inflation rate would fall to single digits in the current calender year.

The monthly inflation rate reached as high as 75 percent late last year as the government tightened the money supply in a bid to bolster the ailing rupiah.

He said the rupiah, which plummeted to its lowest level of 17,000 against the U.S. dollar in February 1998, would continue to strengthen to reach Rp 6,500 by year's end.

Fox said some issues, such as the complexity of the corporate debt restructuring process, the unclear cost of the bank recapitalization and political uncertainty partly caused by the delay in vote counting, would lead investors to remain cautious on Indonesia.

He believed the lingering concerns should not deter foreign investors from exposure to Indonesia.

He added that new investors would be interested in predicting the relationship of the new government with the International Monetary Fund, which brokered a multibillion dollar bailout for Indonesia contingent on sweeping economic reforms. (cst)