RI lures foreigners to banking sector

RI lures foreigners to banking sector

Leslie Lopez, Doe Jones/Asean Wall Street Journal, Jakarta

Foreign investors have agreed to acquire controlling stakes in two Indonesian banks, reflecting the growing attraction of the country's financial sector as the economy picks up speed.

On Sunday, Malaysia's state-owned investment arm, Khazanah Nasional Bhd., said it has signed a preliminary agreement to acquire a controlling 52.05 percent interest in PT Bank Lippo from a consortium of international investors led by a unit of Swiss financial group Swissfirst AG. Khazanah's negotiations to buy into the Indonesian bank were first reported last month by The Asian Wall Street Journal.

Khazanah, in a statement, said it will pay between Rp 3.18 trillion and Rp 3.30 trillion (between about US$325 million and $340 million) for the Bank Lippo stake. It said the final purchase price will be based on the audited financial results for the Indonesian bank at the end of June this year.

The Khazanah deal comes on the heels of Friday's announcement by Singapore's second-largest lender, United Overseas Bank Ltd., or UOB, that it will pay about $168.7 million to purchase an additional 30 percent interest in PT Bank Buana, raising its stake in the Indonesian bank to 53 percent.

Under Indonesia's corporate-takeover rules, both the Malaysian and Singaporean investors will be required to make mandatory general offers for the remaining shares that they don't own in the two banks. A general offer could cost Khazanah as much as $650 million -- including the 52 percent Swissfirst stake -- if all shareholders of Bank Lippo were to accept it, say bankers involved in the negotiations.

For UOB, which paid about $116 million for its initial 23 percent interest in Bank Buana last year, a mandatory general offer for the remaining 47 percent will cost about $260 million, the bankers say.

The two proposed transactions, which must be approved by Indonesia's bank regulator, are the latest in a growing trend of mergers and consolidation in Southeast Asia's banking sector, which was hit hard during the region's 1997-98 financial crisis.

With maturing markets at home, some stronger Malaysian and Singaporean banking groups have been investing aggressively elsewhere in Asia to in order to grow. In particular, Indonesia -- Southeast Asia's largest country with more than 230 million people -- is gaining favor with foreign investors who have warmed up to the country following last year's election of Susilo Bambang Yudhoyono. The president has tried to crack down on corruption and has endorsed a more liberal investment environment.

The developments have lifted business confidence and, coupled with strong prices for Indonesian commodities, have helped revive the economy. Jakarta's central bank predicts the Indonesian economy will expand by as much as 5 percent this year after several years of tepid growth. Lower domestic interest rates are helping drive consumer spending as well as reviving housing and construction activity.

During the past two years, banks including Standard Chartered PLC of London and Deutsche Bank AG of Frankfurt, together with investment funds from Singapore and Malaysia, have acquired substantial stakes in Indonesian banks.

Khazanah already has an indirect presence in Indonesia through its controlling 22 percent shareholding in Malaysia's second- largest financial group, Commerce Asset-Holding Bhd., which owns about 62 percent of PT Bank Niaga, Indonesia's ninth-largest lender by assets.

Malaysian banking executives say Khazanah wants to acquire Bank Lippo to increase its overall investment in the financial sector. Of a total investment portfolio valued at $15.2 billion at the end of May, Khazanah's financial-sector holdings accounted for 13.8 percent. Executives of the investment holding company have said they would like to raise that percentage to about 25 percent.

Bank Lippo is one of Indonesia's better-known banks, especially among small- and medium-scale business borrowers. The bank was founded by one of Indonesia's most prominent ethnic Chinese tycoons, Mochtar Riady, who controls the Lippo Group conglomerate. Along with other Indonesian banks, the group's financial-sector investments were hard hit during the regional financial crisis. Bank Lippo was kept afloat through a $700 million Indonesian government bailout in 1999 that gave the state a controlling 52 percent interest in the bank. The Riady family's holdings were diluted to less than 6 percent as a result. Early last year, the government sold its Bank Lippo stake to an international consortium led by Swissfirst for $143 million.

UOB is among a growing cast of Singaporean groups that have invested heavily in Indonesian banking. Oversea-Chinese Banking Corp. has a controlling stake in Bank NISP, while Singapore government investment company Temasek Holdings (Pte.) Ltd. has shareholdings in Bank Danamon and Bank Internasional Indonesia, Indonesia's fifth- and sixth-largest banks by assets, respectively.