Kanindo finally acquired

Kanindo finally acquired

It was widely predicted that the business consortium led by
Bambang Trihatmodjo, chairman of the widely-diversified Bimantara
conglomerate, would end up as the new owner of the debt-ridden
Kanindo textile group. That prediction had prevailed since early
this year despite the strong lobbying by the finance minister,
the Indonesian Chamber of Commerce and Industry and even the
economics department of the ruling Golkar political group to have
the textile group temporarily under the management and control of
the Batik Cooperatives Association (GKBI) take it over.

In spite of all of the official pronouncements about the high
priority of the development of cooperatives as one of the
backbones of the nation's economy, the contest for the takeover
of the Central Java-based textile group took an unusual path as
soon as the politically well connected consortium entered the
picture.

There were, we think, at least two important factors that
determined the success of the bid from Bambang's consortium.

First, as soon as the consortium entered the game and its
members were disclosed, no other interested investors dared to
submit bids. That was not because other businessmen were
prohibited from submitting competitive bids. Nor was it due to a
total lack of commercial viability on the part of the Kanindo
group. The group turned out to be highly profitable under the
management of GKBI, which managed the company from last September
under a contract with the creditors. It was more a result of the
way the business community perceives the business scheme of
things specific to Indonesia.

The question then is whether the deal concluded by the state
banks with the new owners was fair, given the restrictions
encountered with regard to the sole bidder. Anyway, given the
stature of the consortium members, even the managements of the
state banks had little leverage in the bargaining process.

The position of the two state banks -- Bank Bumi Daya and the
Development Bank of Indonesia -- also seemed rather weak when
Kanindo's bad loans were set against the backdrop of the
questionable ways in which they had extended almost Rp 1 trillion
(US$450 million) in credit to a single group controlled by a
businessmen who had once been convicted of car smuggling.

The second factor, we reckon, is the blunt fact that only a
few businessmen in the country are capable of raising a large
enough amount of fresh funds for the acquisition. Bimantara is
one of the few. Yet questions still remain as to how the
consortium could have raised such a large sum of fresh funds
because the companies owned by the consortium's members are all
private concerns which are not subject to financial disclosures.

Even though many might question whether the terms of the debt
rescheduling, including annual interest of only 11 percent, which
is way below the market rates today, are fair to the state banks,
the takeover deal has at least saved the banks from much bigger
losses.

The Development Bank of Indonesia, for example, has not been
able to collect the estimated $620 million in loans it extended
outside of normal credit procedures to Eddy Tansil of the already
bankrupt Golden Key group. This loan scandal led to the
imprisonment of the bank's directors and Eddy himself.

Hopefully, what has been agreed by the Bambang-led consortium
and the two state banks will be implemented fully. Even though
the deal may not be the best for the state banks, it will release
a large sum of lending resources back to the creditors. Thousands
of small and medium-scale businesses can then benefit from the
new funds available at the two state banks.