bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

urlAlias

moreOnThisArticles

sponsorType

commentCount

authorLocations

authors

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

Vaudine England

WORKING OUT how Standard Chartered Bank managed to snatch defeat from the jaws of victory when it lost its bid to buy a majority stake in Bank Central Asia has become a popular parlour game in recent weeks.

The United States investment firm Farallon Capital Management made the final payment for its 51 per cent stake in BCA on April 5, boosting government coffers by more than US$520 million.

The two financial heavyweights had been locked in a close race to buy the stake in Indonesia's largest retail bank from the Indonesian Bank Restructuring Agency.

Standard Chartered's managers involved in their failed bid are licking their wounds. Some claim they lost due to political skulduggery designed to let BCA return to its home in Suharto crony Liem Sioe Liong's First Pacific empire in time.

But this deal was not about price, or about the conditions attached to the bids, or even the politics of ownership. It was about transparency, a highly fluid concept in this country.

The consensus among independent veterans is that Standard Chartered misjudged what transparency means now.

Put simply, Standard Chartered's bid was marginally higher than Farallon's but came with undesirable conditions. Standard Chartered thought it could drop those conditions as negotiations continued, assuming that the phrase 'final bid' was not final at all.

Practice gave Standard Chartered some basis on which to make this assumption.

This time too, the Government offered to let the two bidders restructure their bids after the January 28 deadline. At this point Standard Chartered planned to drop its conditions.

But it never got the chance. An eagle-eyed press and the parliament's Financial Commission spotted a bending of the rules, however customary in times past, and alleged some fiddling of deals was being allowed behind the scenes through a deadline extension.

For Minister for State Enterprises and Investment Laksamana Sukardi, an upright man intent on an unassailably transparent sale process, the decision clearly had to be made on the bids as they stood at January 28.

So Farallon won, for having the better bid, in a shock to almost everyone involved.

Of the many lessons this saga has for any foreign investment group now eyeing other indebted banks and companies for sale in Indonesia, the most startling is that an open process could take place and could result in the most logical outcome.

Supporters of Mr Laksamana, spread liberally through the foreign business community in Indonesia, remain convinced that the BCA bid was won fair and square.

An investment manager said: 'There was nothing sinister about it, the process was conducted in the open. Standard Chartered's main misjudgment was that it thought it could negotiate after the first deadline. The Government bent over backwards to do it straight.'

Even sources close to Standard Chartered admit: 'There were no blatant brown envelopes, there was too much scrutiny.'

Standard Chartered sources are more jaded, however, pointing to Farallon's partner in its bid, the Djarum clove cigarette empire. They allege Djarum is close to the Liem family, the founders of BCA, both hailing from Kudus in Java and both ethnic Chinese.

Some also point to the marriage a year ago between a scion of the Djarum group and the daughter of the Surabaya-based Wings group, adding that Wings has a joint venture in chemicals with Anthony Salim, active leader of his father Liem Sioe Liong's empire.

A Standard Chartered source said: 'Djarum was not fronting for Salim, they paid their own way. But would they do something against Salim? No way. Everybody's talking to each other all the time.'

Salim is widely believed to want to get his pride and joy, the BCA, back into the family fold. What better way than to let Farallon do its usual practice of tidying up the bank and selling it on, to him?

This may indeed come to pass, and probably would, no matter who bought the bank, say the veteran observers. But for the Government to ride high on maximum political benefit from a clean sale, only transparency would work, they add. And that meant that the 'final bid' was indeed final.

Standard Chartered sources now admit that the controversial condition first inserted to require a 15 per cent payment into an escrow account was only intended to build in leverage. 'This probably made things more complicated,' one agreed.

Standard Chartered's bid appeared to be the favourite from early in the process because bid conditions and International Monetary Fund advice suggested it would be best to have an international bank buy the jewel in Indonesia's banking crown.

'The broader point about Standard Chartered's behaviour was that it assumed it was the favourite from the beginning, and acted like that,' the investment manager said.

Not fair, said another Standard Chartered ally: 'What tipped the scale against us was that later the IMF stayed neutral on whether the buyer should be a bank or not. It was decided that transparency was more important.' The desirability of a bank investor was acknowledged by Farallon when it brought Deutsche Bank in as technical advisers.

Some say the equity fund is a better buyer anyway. Another investment adviser said: 'One could argue that because BCA is such a strategic bank with such a vast bill-paying infrastructure through the economy, it's better to have a purchaser unlikely to get tangled in all that.'

Other lessons for investors from this process is that in retrospect, demonstrations by BCA staff against a Standard Chartered win for fear of staff cuts, were not a deciding factor. Nor was the price alone a guide to the final decision.

A government financial adviser said: 'Farallon made it easy and quick for this Government to get some money moving in fast, and they've offered to retire government-held bonds [in BCA] quickly too. And that's what we need here right now - money, no hassle, and transparency.'

Another lesson, perhaps, is that Mr Laksamana's desire to 'maintain the credibility of the sale process', as he put it, and his sense of urgency about selling off indebted firms, reduces the importance of who may or may not buy the firms in the future.

'As a financial investor, Farallon will re-sell BCA, that's our business. But we wouldn't be doing this in the next two to three years. We see BCA as a long-term investment,' Raymond Zage, director of Farallon Capital Management Asia and Australia, told the Tempo  news weekly.

'Farallon has very high technical standards, and does not have relations with those under a cloud in Indonesia, including Salim. We never contacted the Salim Group, and they never contacted us.'



Nipped in the bid