Permata bidders must get equal treatment: Analysts

Permata bidders must get equal treatment: Analysts

The Jakarta Post, Jakarta

As overseas and domestic investors seem equally interested in
acquiring a majority stake in Indonesia's seventh largest bank,
Bank Permata, equal treatment then should be the key to ensure a
fair competition between them to muster the best possible winner.

So far however, the Asset Management Company (PPA) -- a state
body overseeing the sale of a 51 percent stake in Permata to
strategic investors -- is seen lacking in that aspect, at least
according to one expert Iman Sugema and one lawmaker Rizal
Djalil.

The two cited some items on the list of requirements set out
by the PPA for potential investors seen as more "in favor of
foreign investors."

They said that they were planning to ask the Business
Competition Supervisory Agency (KPPU) to see whether the way the
sale was being carried out violated fair business practices. The
KPPU is tasked to ensure that transactions are carried out in
compliance with the best business practices.

"For instance, the PPA does not allow domestic banks to use
borrowed funds to finance the acquisition. While I agree with
this, they (PPA) do not apply similar requirements on foreign
investors," Iman, an economist at the Institute for the
Development of Economics and Finance (Indef), said during a talk-
show on the issue on Saturday.

"I recalled the fact that when Farallon bought the majority
stake in BCA (Bank Central Asia) a few years ago, they actually
got the money by issuing sub-debt.

"If local investors are not allowed to finance the sale from
borrowed funds, foreigners are not supposed to be allowed
either," Iman added.

Rizal, a legislator from the House of Representatives
Commission IX on financial and banking affairs, concurred, citing
a bank ruling which limits the size of a local bank's investment
in a single entity to no more than 10 percent of its net equity.

"I understand that the ruling is meant to protect banks from
recklessly expanding their business. But PPA, in coordination
with the central bank, should adopt also similar stance to
offshore investors (banks)," he said.

The ruling practically seals the chances of even the largest
bank in the country to proceed with the acquisition plan, unless
a consortium was formed to back them up financially.

The sale of Permata, in which the government -- through the
PPA -- owns 97.17 percent of the stake, is drawing much
interest, from foreigners and domestic parties. PPA said that so
far more than 40 business entities, mostly banks, had shown
serious interest on the bank. Following a successful road-show in
Singapore last month, the PPA plans to visit London later this
month.

Among of the local investors interested in bidding for Permata
are Bank Mandiri, Bank Rakyat Indonesia, Bank Panin, Bank Buana,
Bank Danamon, Bank Artha Graha and Bank Niaga.

However, other analysts have said the huge interest from local
banks was encouraging, but questions remained as to whether the
locals could bring the kinds of improvements to Permata that
foreign strategic investors had brought to local banks they had
purchased in recent years.

In the past three years or so, the majority stakes in BCA,
Bank Niaga, Bank Danamon, Bank Internasional Indonesia (BII) have
been bought by offshore investors. Most of them have been showing
good progress after the acquisitions, as shown in their financial
indicators such as improved capital adequacy ratios (CAR) and
loan to deposit ratios (LDR). The shares of the publicly listed
banks have also performed well on the stock market. (see table)

This is perhaps the main reason behind those who argue that
foreign ownership in Permata would boost improvement in the
bank's performance.

They said foreign bankers would bring about expertise needed
to develop good corporate governance in the banking sector --
which up to now remains vulnerable to frauds. Others also said
that with most of local banks still dependent on interest revenue
from government recapitalization bonds, acquisition move should
be on the bottom list of their agenda.

"In principle, the central bank does not mind whoever the
winner is, locals or foreigners, as long as it is in line with
the existing rulings such as on capital, business plans and so
on, then we'll have no problem," Muliaman Hadad, deputy director
at the central bank's banking research and regulation unit, told
the forum.

Bank share prices after acquisition (as of June 22, 2004)

Bank Buyer Share price Increase

BCA Farallon Capital Rp 1,775 300.0%

Niaga CAHB* Rp 290 9.4%

Danamon Temasek & Deutsche Bank Rp 2,650 120.5%

BII Kookmin Bank & Temasek Rp 130 58.5%

* Malaysia's Commerce Asset-Holding Berhad

Source: PPA