IBRA finally sells Lippo Bank

Indonesia''s great bank sell off draws towards a close.

With only a month to go before it is to be officially wound up, IBRA has sold its fifth bank stake and now retains only a 71% stake in Indonesia's 13th largest lender, Bank Permata. IBRA had a five year mandate to sell its stakes in the banks and with the sale of Lippo Bank its mission is almost fulfilled.

IBRA will raise $144 million from the sale of 52% to the Swiss Asia Consortium. ING advised IBRA and Swiss Asia was advised by Steve Simpson's Triton Advisors.

The price paid at Rp591.5 a share matched IBRA's stated goal of obtaining a floor price that equalled the bank's 2002 book value.

Indeed, IBRA held out to get this price. Back in October when the deal was supposed to close the best offer it received was Rp345 a share, and by Christmas this had risen to only Rp385 a share.

At this point three bidders including Taiwan's Chinatrust were intent on gaining IBRA's stake. In a somewhat unorthadox move, IBRA then narrowed the bidding down to just the Swiss Asia consortium which earlier this month upped its bid to Rp403 a share.

IBRA held firm - in spite of the coming deadline for its winding-up - and set a deadline of yesterday for Swiss Asia to make a revised offer. Swiss Asia then upped its bid to IBRA's floor.

But in a further unusual twist, the bank's 2003 accounts have just been audited and the book value was written down yesterday to Rp378 a share. Based on this IBRA sold the bank at a 56% premium to current book value. This is the highest premium it has so far achieved. It sold its stake in Niaga at a 45% premium to book, BCA at 20%, Danamon at 27% and BII at 20%.

However, the sale represents only a 3% premium to Lippo Bank's stock price. But again this is better than previous sales; Niaga was sold at a 12% discount to the stock price, Danamon at a 15% discount and BII at a 20% discount.

Lippo is Indonesia's eighth biggest bank by assets and has an asset base of $3.1 billion and is strong in the payments area with a strong SME franchise. It has 379 branches and 635 ATM machines.

The consortium buying the bank is something of a mystery. Holding 49% of the consortium is private bank, Swiss First and Austria's fourth biggest bank, Raiffeissen Zentralbank. Holding 51% are three funds: Matrix Asia Holdings, ASM, and Ferrell Opportunity Partners.

Old Indonesian hands suspect that lurking somewhere behind the scenes is the Riady family, which still retains a large stake and controls Lippo Bank. Indeed, Mochtar Riady is the president commissioner.

The Lippo sale has been dogged by controversy because of suspicions that the Riady family have been trying to buy the bank back on the cheap. Legally-speaking, they could bid for the bank in their own name since they participated in the recap in 1999 - unlike most other Indonesian family bank owners.

But the fact that they haven't bid - when they are known to want the bank fully back in the stable - has further fuelled the speculation. That speculation was fomented by the way the bank has been run since it reverted from an ING management contract.

ING was appointed to run the bank - to international standards - between 1999 and 2002. Ian Kline of ING was made the CEO and achieved returns on equity of 10% and improvements in market share and brand awareness.

Once this contract expired, however and the Riadys were back at the helm, the value of the bank was quickly depressed by foreclosures on Lippo Group assets and a scandal over the annual report. The bank was, in fact, fined for failing to produce its annual report by March 31st last year and when the numbers came out there were massive revisions. In the first three quarters of 2002 the bank had reported Rp99 million of profit, only to release full year results with a staggering loss of Rp1.27 trillion. This has all impacted the book value for the worse (as indicated above for the 2003 number).

These were strange happenings to occur in a year slated for the bank's sale. Indeed, where a sheep is fattened up for a sale, this looked more like a fleecing. Some observers suspected this was a deliberate strategy so the Riadys could buy back the stock at the cheapest possible price.

Investment bankers say that many well known foreign institutions would have been lining up to buy Lippo but for the presence of the Riady family in the bank. Memories of Standard Chartered's battle with a controlling family in Bank Bali remained fresh.

But whether the consortium that has bought the IBRA stake has anything to do with the Riadys still remains a subject purely of speculation. What is known is that Swiss First had indicated to the seller that it is interested in Indonesia's private banking market (via Lippo) and Raffeissen (like Kookmin which took a stake in BII) is said to want to expand outside its own saturated market and this is a cheap way to get experience.

At the end of the day, IBRA will be happy to have achieved its mission and sold the bank at the floor it set. Indeed, in spite of all the shenanigans last year, it has sold the bank based on the book value of the bank in a year (2002) in which ING was in charge for almost its entirety, and that book value is probably fair. However, it should be added that if it had been able to match its success with the other banks (and the premium to a "fair" book they were sold at ie 20% or so) it would have raised an additional $30 million from the sale.

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