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.