On Wednesday evening Indonesia's parliament finally approved the sale of 51% of Bank Niaga to Commerce Asset Holdings of Malaysia. The Indonesian Bank Restructuring Agency (IBRA) will receive Rp1.057 trillion ($118 million) for a price of Rp26.5 per share.
The price has been something of a sticking point. The House of Representatives Commission IX for financial affairs had last week rejected Commerce Asset's bid and asked IBRA to go back and ask for a price of around Rp30-Rp35 per share. Understandably, Commerce Asset politely explained that as the original bid had been made under a tender, it was binding and therefore Commerce Asset was in no position to increase the size of its offer. The message seemed to have got through and the original bid was accepted.
Despite the unseemly but fruitless meddling of politicians, IBRA can feel good about the price it got for the bank. The price equates to 1.45x Bank Niaga's first half 2002 book value. This is considerably more than the 1.2x book that Farrallon paid for Bank Central Asia back in March. Moreover with the new owners in charge, IBRA's remaining 49% stake in Bank Niaga should appreciate further allowing it to recoup even more money through a further divestment, possibly in 2003.
For Commerce Asset, it is a sign of its growing regional standing and testament to the strength of the Malaysian banking system. According to Merrill Lynch research, the price paid by Commerce for Niaga "represents 5.3% of Commerce Asset's market cap, and in terms of size, Niaga equates to about 11.5% of its total assets."
Emphasizing this growing strength of Malaysian banks, on Wednesday Moody's upgraded six Malaysian banks, including Commerce Asset's local Malaysian bank, Bumiputra-Commerce Bank Berhad. This should aid its sale of a subordinated bond issue planned for later this year.
The Indonesian banking sector has its troubles, but it also has some very evident attractions. Consumer credit is growing fast in a high interest rate environment. According to analysts in Jakarta, banks are financing motorbike and car purchases at rates of around 26%-28% a year. With the cost of finance for the banks at around 14%-16%, this is a very good business. And, judging by the traffic snarling up the main thoroughfares of Jakarta, there seems to be no shortage of demand for new vehicles.
This sale represents a growing maturity of the bank privatisation process in Indonesia. Given the country's transition to democracy, there is a necessity that all asset disposals are transparent and accountable. This manifests itself in a sometimes protracted parliamentary approval process. But there is a trend which is definitely moving in the right direction รป one could say that the 'hassle quotient' is declining with each sale.
The dreadful early attempts to sell banks such as the Bank Bali fiasco, are hopefully a thing of the past. And it appears that there has been considerably less controversy surrounding the Niaga sale than that of the previous BCA deal. Crucially, Indonesian politicians now realize that an asset is only worth what a buyer is willing to pay for it, not the price the seller wants. Allied to that is a policy to get deals done rather than trying to time the market, hoping for the best price.
With Niaga almost in the hands of its new Malaysian parent, eyes are focusing on which banks will next be sold. Coming up next is the IPO of Bank Mandiri, slated for later this year. After that, IBRA has said that it wants to divest stakes in Bank Danamon, Bank Rakyat Indonesia, Bank Negara Indonesia and Bank Tambunan Nasional. It is unclear at this stage if these next four sales will be sold strategically or through the capital markets
