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The sale three years ago of Indonesia's prized banking asset, Bank Central Asia (BCA),  to United States hedge fund Farallon Capital Management came as no surprise to cynics hardened by years of exposure to the smoke and mirrors that obscured so many big business  deals in Jakarta.

Smoke and mirrors, of course, is just one way to  characterise those deals.

Others, actively encouraged by  former president Suharto and his business cronies, include 'wahyu' - a notion implying a mystical understanding available to only a few (Suharto among them) of God's will; and 'Javanese inscrutability'.

Nonsense terms all, designed  to discourage questions and excuse the veil drawn over the corruption that was endemic under Suharto.

However, today,  business practices in Jakarta are supposed to have been reformed, and the lock-up period during which Farallon was contractually obliged to hold on to its BCA stake is due to expire (the deal was announced on March 14, 2002).

That means Farallon will be free to find a buyer for its BCA shares and book a profit for its investors. And what a profit it is now poised to turn.

Its 51.2 per cent stake  cost US$520 million, while the market value of that holding this week, thanks to a rebound in the economy that has  favoured bank stocks, was US$1.98 billion (6.23  trillion shares, or 51.2 per cent of the 12.18  trillion shares in issue, that were last trading at 2,925 rupiah ($2.48) per share).

Ordinarily,  Farallon should not be expected to quit at that price.

In October last year, Standard Chartered and an Indonesian partner,  carmaker Astra International, acquired a controlling stake in Bank Permata, for US$300 million - a deal that valued the far smaller and less strategic acquisition at 2.7 times its June book value.

BCA's  book value per share at the end of December last year is forecast by analysts to emerge at 1,320 rupiah when its annual result is unveiled  this month. Assuming its stellar profit growth is sustained, the forecast book value  will be 1,550 rupiah a share.

QED. If Farallon does sell its stake  any time soon, and if it quits at a premium it might expect to command, it should sell  at about three times forecast book value, or   about US$3 billion.

That would be a tidy 476 per cent return  over three years.

Not all of the profit will go to Farallon. The stake is held through a Mauritius-registered joint venture called FarIndo, in which the  Djarum conglomerate owned by the Hartono family holds a  10 per cent stake.

But  the issue that has the Indonesian marketplace abuzz with speculation  is who might pay that much for the stake?

Standard Chartered lost out to FarIndo in 2002,  despite bidding more  and despite its credentials as a successful emerging markets bank committed for the long haul,  against those of a buyer specialising in acquiring distressed assets and quitting them as soon as  possible.

For an explanation of this odd decision by the Indonesian government, which was running the sale, see 'smoke and mirrors' etc. See also a statement from the government agency responsible for the sale that it would attach a weight of just 50 per cent to the bid price; 25 per cent to the terms and conditions attached to the bid; 20 per cent to the member consortium behind the bid; and 5 per cent to their business plan.

Since Standard Chartered's bid price was higher, it follows that it was faulted on terms and conditions, its business plan and its partner.

Hedge fund FarIndo, by contrast, must wisely have attached fewer conditions,  presented a business plan that better suited the Indonesian government's agenda, and cut into the deal a partner it found more acceptable -  Djarum.

Within months of the transaction,  BCA's three independent commissioners were dismissed, evidently at the behest of the Hartono brothers, Bambang and Budi, and despite the fact  they voted only  10 per cent of the shares in the  consortium.

So, will Farallon be selling any time soon? Very likely.

Will a foreign bidder acquire the stake at  about three times book value? Less likely.

Will existing 'minority' partner  Djarum  get the stake - perhaps with some support from its friends? More likely.

At what price?

See 'smoke and mirrors', etc.



More smoke and mirrors obscure sale of BCA stake