Singapore group wins Astra

Singapore group wins Astra

The drama surrounding the Indonesian Bank Restructuring Agency
(IBRA)'s efforts to sell its controlling stake (almost 40
percent) in PT Astra International ended on Friday, with
Singapore's Cycle & Carriage Ltd. (CCL)-led consortium coming out
the winner against the Newbridge-led group. Even though CCL
entered the competition only last month, its consortium's
financial bargaining power received a significant boost when
Lazard Asia Fund, the leader of another bidder, disbanded its
consortium at the 11th hour and joined forces with the CCL-led
group, a move that turned the competitive bid into a two-horse
race.

On the other hand, the Newbridge-led consortium was
psychologically and financially weakened a few hours before the
deadline for the final bid on Thursday afternoon, after its
coleader, Gilbert Global Equity Partners, abruptly pulled out of
the group. This severely curtailed this consortium's financing
leverage, the main reason behind its losing bid price of Rp
3,600, which was lower than the Rp 3,750 it offered last year.
This defeat brought to a sad end the long saga of the American
investor group's bid to secure controlling ownership of
Indonesia's largest carmaker.

This consortium failed in its first attempt to obtain IBRA's
Astra stake when its preferred-bidder status, accorded last
September, wound up in tatters in late January following
controversy over the alleged lack of transparency in its deal
with IBRA and acrimonious debates with Astra's management over a
due diligence.

Though the winner of the bid came as a surprise to many
analysts, and the final transaction price was only Rp 3,700 (49
U.S cents) per share, the deal doubtlessly is a landmark
transaction for foreign investors in Indonesia. This is not only
because of its $506 million value that made it the largest
foreign investment deal since the outbreak of the financial
crisis in 1997, but, and most importantly, also because the
transaction is seen by all the bidders, as well as market
analysts, as wholly transparent and fair.

IBRA's move to allow representatives of the World Bank and the
International Monetary Fund, as well as the mass media, to
witness the presentation of the final bids, and the appointment
of an independent notary public to receive the bid documents
added to the credibility of the process. This highly transparent
conclusion to the bidding instantly killed the rumors which were
buzzing on Thursday morning that Kumpulan Guthrie Bhd, a property
and plantation company from Malaysia, would enter the final bid
even though it was not among the three final bidders short-listed
in the preliminary tender last month.

The transaction will surely restore IBRA's credibility and
reputation in the international community, which is crucial for
the agency to achieve its task of selling the Rp 600 trillion
worth of assets and bad debts in its portfolio. Most importantly
is the positive impact the transaction will have on foreign
investor confidence in the country.

Because the Government of Singapore Investment Corp. is a
major investment partner in the CCL consortium, the transaction
will surely provide momentum for further enhancing Indonesia-
Singapore economic cooperation. The deal realizes the Singapore
government's stated commitment to aid Indonesia's economic
recovery, made when Prime Minister Goh Chok Tong, accompanied by
a powerful business delegation, made a state visit to the country
in January.

As CCL is the largest and most experienced car distributor in
Singapore and its investor consortium also includes Indonesia's
Bhakti Investama, partly owned by the Quantum Fund of George
Soros, Batavia Investment Management Ltd., also linked to Bhakti,
and the Lazard Asia Fund, the new investor is best placed to act
as a strategic investor and a new major source of financing for
Astra. A strategic investor, unlike a portfolio investor, will
bring significant changes to a company's business strategy, and
consequently will have a huge impact on its future valuation.

Surely, the CCL investor group is not a short-term speculative
investor intending to make a killing within the next few months.
An investment of $506 million in one company is dramatic, which
means the investor group is betting on Astra's future. Because
its huge debt service burden is one of the most pressing problems
Astra currently faces, the financially powerful CCL investor
group will be the best placed partner to remedy any cash-flow
pressures Astra may face in the near future.