Banks named to back up privatization program

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)