Takeovers in Singapore

It is perhaps too early to view the flurry of company acquisitions by Indonesian businessmen in Singapore over the last few months as a major trend which may lead to significant capital flight. The number of corporate takeovers has been relatively small so far (only five), and the value of the acquisitions also has been rather small in terms if international transactions.

The moves may have become an issue more because the targets of takeovers, or takeover bids, were companies listed on the Singapore stock exchange and the transactions were subject to full disclosures. That, we think, is partly responsible for generating the keen mass media attention to the transactions.

The latest trend nonetheless requires a closer watch, especially because it is happening amid the rising criticism by the public in Indonesia of the steadily high pace of business conglomeration by a few groups of businessmen. As it happens, most of the acquisitions were made by businessmen, or subsidiaries, of the largest business groups in Indonesia.

Moreover, most of the acquisitions are not related to what the government has encouraged Indonesian companies to undertake -- forming strategic marketing alliances to tap the international market.

The higher pace of takeover transactions in the island republic also is raising eyebrows because it is occurring amid the controversy over the business expansions by conglomerates which command more than 50 percent of the domestic market for particular products.

Even though the controversy over the 50 percent market dominance has provisionally been cleared away by some ministers, resolution of the issue is pending clear-cut rulings. Minister of Industry Tunky Ariwibowo said a government regulation on market dominance and business expansion would be issued before the end of this month.

Despite all the apparent coincidences, we tend to reckon that the recent series of business acquisitions is part of normal business expansion meant to take advantages of Singapore's well- managed, strategic position as a regional base of operations. After all, Singapore's financial and capital market is far more advanced than Indonesia's and its bank interest rates are way below those charged by banks in Indonesia.

Though, as we noted earlier, the higher pace of Indonesian expansion in Singapore has not yet reached the point of worrisome capital flight, the trend makes it most imperative for the government to deliver on its promise of a clear-cut regulation on business expansion. Further delays may cause doubt, or even a high degree of uncertainty, among businessmen intending to implement new investment projects in the country.

The regulation, we think, should clearly define the parameters to determining market dominance. Market dominance itself is not bad as long as such a position is gained under fair, open market competition. It is the possible abuse of market dominance that should be addressed by the regulation.