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.