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