Battle for Astra shares

Battle for Astra shares

The Indonesian Bank Restructuring Agency (IBRA), hard pressed
to achieve its target of raising Rp 17 trillion (US$2.4 billion)
in revenue for the state budget, is in danger of repeating the
mistake that scuppered its deal with Standard Chartered Bank Plc.
for equity investment in Bank Bali early this month.

IBRA's decision on Dec. 9 to choose, without a competitive
bidding process, an investor group led by Newbridge Capital and
Gilbert Global Equity Partners of the United States as the
preferred bidder for its 40 percent stake in PT Astra
International has irked Astra management. The deal seemed to
violate the principle of transparency, which the agency often
claims is the hallmark of its transactions.

However, IBRA became embroiled in a spat with Astra management
earlier in September soon after Newbridge/Gilbert approached the
agency concerning the possible acquisition of its Astra shares.
IBRA, apparently without consultation with Astra, immediately
gave an exclusivity period to Newbridge/Gilbert for completion of
an all due diligence and final negotiations of terms and legal
documents for a share transaction. The exclusivity right
practically closed the IBRA stake in Astra to other interested
investors.

But the speed in which IBRA responded to Newbridge/Gilbert's
offer to buy its Astra shares is, to some extent, understandable,
given the pressure faced by the agency to achieve its revenue
target. The agency might also have been surprised that there were
still foreign investors "crazy" enough to buy equity in Indonesia
when the political uncertainty had ground to a complete halt even
domestic investment and the business climate was so full of
uncertainty that risk calculation became an impossible exercise.

The agency became involved in another wrangle with Astra when
the largest automobile company was asked to provide inside,
proprietary information to Newbridge/Gilbert in light of the due
diligence for its purchase of IBRA's Astra shares. As a
government agency under the finance ministry, IBRA must have
known that it should be officially registered as a significant
shareholder with a stake of at least 20 percent to be entitled to
inside information from Astra.

But though IBRA claims to control some 40 percent stake in
Astra through a combination of equities pledged by several
conglomerates as repayment of their debts to the central bank,
the agency seemed ignorant of the need to completing the legal
technicalities for having its equity ownership officially
registered. Instead of acting speedily to resolve the technical
problem, the agency accused Astra management of trying to block
its deal with Newbridge/Gilbert.

By the time the legal technicalities were finally resolved on
Dec. 15 and the Indonesian securities watchdog, the Capital
Market Supervisory Agency (Bapepam), classified IBRA as an
insider party, thereby entitling it to conduct a due diligence on
Astra, the friction had already been created.

We find it hard to understand why IBRA seemed to be in such
disregard of Astra management. The agency must have realized how
crucial its deal with Newbridge/Gilbert would be to winning back
foreign investors after Standard Chartered Bank Plc. of Britain
quit its investment deal for Bank Bali early this month under
controversy.

Astra directors should at least be credited for having
maintained Astra's reputation as the blue-chip company on the
Jakarta Stock Exchange and highly respected for its strong
management. The Astra management and its employees must have
contributed something to enable Astra International to recover so
quickly from the deep recession. Astra could not have
successfully rescheduled its debts of more than $1 billion to
dozens of foreign creditors had not its management been seen as
honest and accountable by the creditors.

Astra booked a net profit of more than Rp 330 billion in the
first nine months, compared to a loss of Rp 1.8 trillion in the
comparable period last year. Astra shares also have risen sharply
from Rp 225 last year to about Rp 3,750 now.

Astra management, employees and other shareholders, including
Toyota Motor and the International Finance Corporation (the
private-sector arm of the World Bank) and the investing public
deserve the right to be kept posted of the process by which new
significant shareholders would come in as a result of an IBRA
deal. After all, IBRA became a majority shareholder in Astra only
by accident and not because of an investment made on the basis of
Astra's future prospects. The agency can simply forget Astra
after selling its stake in the company.

Without a cooperative management, the IBRA deal with
Newbridge/Gilbert is poised to fail because the value of Astra
would be rendered less worthy without its strong management.