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.