Khazanah makes bid for Bank Lippo

Malaysian government investment arm diversifies into Indonesian banking sector.

Khazanah Nasional Berhad, the investment holding arm of the Malaysian government, announced plans to buy a 52% stake in Indonesia's Bank Lippo over the weekend. The move marks the group's first direct investment in Indonesia's banking sector. It also underlines its determination to ape the success of its forerunner Temasek, the investment arm of the Singaporean govenment, which currently holds a 56% stake in PT Bank Danamon and a 28% stake in Bank Internasional Indonesia.

Analysts have welcomed the decision. "I think this is a vote of confidence on the outlook of the country," says Raymond Kosasih, a research analyst at Deutsche Verdhana Indonesia.

He adds, "For Lippo Bank, the competitive lanscape has changed significantly - most banks already have strong strategic partners who can support capital raising. Without a strong strategic partner both in terms of capital and expertise, Lippo Bank could see its deposit franchise deteriorating.

"For Khazanah, it is an entry point to tap Indonesia's growth potential. Lippo Bank, in this regard, has an under-utilised balance-sheet structure, whereby its LDR is still below 30%."

In a statement, Khazanah says it, "believes that Bank Lippo's franchise and banking infrastructure will provide an excellent platform to participate in the growth opportunities and strong underlying fundamentals of the Indonesian economy."

Khazanah will pay as much as Rp 3.3 trillion ($338 million) for a 52% stake in Lippo, which is Indonesia's ninth largest lender by assets. The final price will be determined after Lippo's accounts are audited on June 30. UBS advised Bank Lippo in the deal.

The price amounts to between 2.5 and 2.6 times Bank Lippo's book value per share based on its March 31 audited accounts.

Khazanah, advised by BNP Paribas, will buy the stake from a consortium of international investors led by Swissasia Global, which is controlled by Raiffeisen Zentralbank, Austria's fouth-largest bank. Swissasia Global, advised by Merrill Lynch, bought 52.1% of Bank Lippo in February 2004 from the Indonesian Bank Restructuring Agency (IBRA) for $142 million. The government sold that stake as part of an effort to both cut its deficit and recoup some of the Rp 450 trillion it has spent bailing out banks since the 1997 Asian Fincial Crisis.

The deal still needs approvals from Bank Indonesia and the approval of Lippo's shareholders. A potential hurdle is a clause in the 2004 sale and purchase agreement that states that Swiss Asia cannot re-sell its stake within the next two years. However, Khazanah says that Swiss Asia has obtained the consent of the Ministry of Finance to sell its entire shareholding prior to the expiry of the two-year lockup period.

Khazanah says it will also offer to buy the remaining Bank Lippo shares in the lender after the deal is competed within three months. The agency has been expanding beyond Malaysia, where it controls some of the country's top listed companies worth a market value of $16 billion. For example, it controls Commerce Asset-Holding, which owns a 61.5% stake in PT Bank Niaga, Indonesia's eight-largest lender by assets.

Lippo says it serves more than 2.8 million customers through a network of 395 branch offices and 690 ATM machines in more than 120 cities in Indonesia. However, analysts say Bank Lippo, may miss its profit target after signing an agreement to sell some property assets at a lower price than their book value. Earlier this month, Bank Lippo signed an agreement with Australian-based property investor Gruenberger & Seitschek Group to sell foreclosed assets for about Rp 2 trillion to be paid over four years. The assets were valued at Rp 2.31 trillion as of March 31.

"That could be viewed as a positive sign as it shows Lippo becoming leaner," says one Jakarta-based banker.

Indeed, investors signaled their approval of the Khazanah deal. Bank Lippo shares rose Rp 50, or 3.5% to Rp 1,480 on the Jakarta Stock Exchange. The share price has more than doubled this year.

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