Banks named to back up privatization program

JAKARTA (JP): The government appointed nine international investment banks yesterday to assist in the partial privatization of 12 state companies.

The institutions are Goldman Sachs, Lehman Brothers, Merrill Lynch, Jardine Fleming, Morgan Stanley, Paribas, Credit Suisse First Boston, UBS/SBC Warburg Dillon Read and Salomon Smith Barney.

State Minister for the Empowerment of State Enterprises Tanri Abeng said Goldman Sachs and Lehman Brothers had been selected as the overall advisors for the privatization program.

The decision was reached after a "vigorous and thorough" selection process which involved 22 international banks.

"The selection was done through a transparent screening process based on international practices," he said in a media conference.

He said the selection criteria were designed together with the World Bank and the International Monetary Fund.

The criteria included the banks' expertise in the respective industry of the state companies, ability and networking to arrange a private placement throughout the world and dedication to Indonesia.

The government plans to privatize seven state-owned companies and divest more shares in five publicly listed state companies in the 1998/1999 fiscal year in a bid to raise Rp 15 trillion (US$1.5 billion) to support the financially strained state budget.

The ambitious program has been endorsed by the IMF, which is organizing a multibillion dollar economic reform program to help lift the nation out of its worst economic crisis in three decades.

The government's divestment plans in domestic telecommunications firm PT Telkom will be prepared by Merrill Lynch and Lehman Brothers; international telecommunications carrier PT Indosat by Goldman Sachs; cement maker PT Semen Gresik by Jardine Fleming; mining operations PT Tambang Timah and PT Aneka Tambang by Morgan Stanley and Paribas. These state companies are already listed on stock exchanges.

The partial privatization of steel maker PT Krakatau Steel will be assisted by Salomon Smith Barney; toll road operator PT Jasa Marga by Lehman Brothers; airport management company PT Angkasa Pura II by UBS/SBC Warburg Dillon Read; plantation company PT Perkebunan Nusantara IV by Jardine Fleming; port operator PT Pelabuhan Indonesia II by Goldman Sachs; PT Pelabuhan Indonesia III by Credit Suisse First Boston.

Tanri said the fee for the foreign banks had yet to be negotiated, but acknowledged that as advisers they normally received a 1 percent fee.

He added the privatization program would be pushed toward private placements, especially through strategic alliances with new investors, because of the current bearish sentiment on the stock exchanges.

"Privatization through strategic investors have good prospects because they are not short-term investors but looking for long- term opportunities."

Tanri was strongly criticized early this week over allegations he had quietly made a deal with the Netherlands-based Ispat International to sell a 49 percent stake of Krakatau Steel for a relatively low price of $400 million.

Some suspected he was compelled to enter into the deal since Ispat's local partner was controlled by the late Edy Kowara, father of Indra Rukmana, son-in-law of former president Soeharto.

Tanri strongly denied the rumors. "No one can force me. I'm not afraid of anybody as long as I'm still within the system."

He referred to the privatization document containing the privatization procedures and criteria which are open for audit by the World Bank, IMF and the public.

He said that when he received the privatization responsibility last year, the World Bank country director Dennis de Tray asked him whether he would be able to cope with pressure from strong persons to sell the state assets to certain groups.

Tanri responded: "That's why we made this procedure. If they keep forcing me, I'd rather resign. I can always find another job."

Tanri, the former president director of the giant Bakrie Group, was appointed as a cabinet member in March by Soeharto. The cabinet lasted for less than three months because Soeharto abruptly resigned on May 21 and handed over power to his protege B.J. Habibie, who then reappointed Tanri to his cabinet.

Tanri said the signing of an MOU with Ispat was not a final deal but merely the second stage of the 12 level process in selecting a strategic partner for state companies designed for privatization.

He also said that a final decision could be made only after a competitive bidding process involving other prospective investors.

It was just a business strategy, he said, adding: "In business, opportunity only knocks once."

He explained that he had to make the MOU because of the strong interest and commitment showed by the chairman of Ispat International, a New York Stock Exchange blue-chip company with market capitalization of $3.4 billion.

There had been not much interest in Krakatau Steel before and the management has failed to get a strategic investor during the past two years.

In addition to the solicited investors selected by the investment banks, unsolicited investors would also be given opportunities to make due diligence, he said.

"This procedure has been accepted by the World Bank and the IMF," he said. (rei)