StanChart and Astra make joint bid for Permata

Standard Chartered looks to motor its way into pole position in its bid for Bank Permata of Indonesia.

Standard Chartered announced late on Friday that it is to team up with Astra International to make a joint preliminary bid for a 71% stake in Bank Permata being sold by the Indonesian government. The stake is one of the last major bank assets for sale in Indonesia and has attracted considerable international attention.

That Standard Chartered should so publicly make its intentions known, months before the winner is even announced has been interpreted as a sign of how serious it is about winning this asset. That is has teamed up with Astra adds a strategic twist to a bid, which is giving analysts much food for thought.

The two join a growing list of local and financial institutions whose intentions towards Permata have been made known to the market. Locally, Bank Central Asia, Bank Danamon, Bank Buana and Bank Mandiri are thought to be seriously looking at the bank. International players such as Temasek of Singapore, Maybank of Malaysia and Citgroup of just about everywhere are also thought to be keen.

For Standard Chartered it will be the second tilt at these assets. Bank Permata was formed by the merger of three smaller banks with Bank Bali in 2002. The government had taken over Bank Bali after it had failed to sell it to foreign buyers, many of whom were put off by Standard Chartered's own experiences with the bank.

In early 1999 StanChart had agreed to buy Bank Bali from IBRA but in July of that year a scandal broke over illegal debt payments between Bank Bali and the government. Standard Chartered by then had a 20% stake and a management contract. But things turned ugly when mobs started attacking StanChart executives on their way into the building. The government of BJ Habibie fell and four months later StanChart pulled out of the deal.

This latest bid looks a very different prospect. In its announcement, StanChart stresses that "it is intended that Bank Permata will continue to operate as an independent entity and that the existing Bank Permata management will continue to develop Bank Permata broadly in line with their current strategy."

In other words, StanChart just wants the shares and will not be integrating it into its own existing - and very successful - Indonesian network.

It would be hard to make a bid that contained only this level of integration successful however. The local players would easily outbid as they would presumably extract more synergies out of a merger and thus offer a higher price. This is where Astra comes in.

Astra International, 42% owned by Jardine Cycle and Carriage, is the largest motor distributor in Indonesia. It is also a massive player in the local finance market, through its financial services arm. By linking Astra's local consumer finance network with Bank Permata, great synergies could be made, especially in the all important retail and consumer finance sectors. Add on Standard Chartered's international expertise, systems, management and capital and this becomes a very potent bid.

After a series of other failed attempts to buy banks in the region, this deal looks all-important for StanChart. Most recently Citigroup outbid it for Koram Bank in Korea. Previously it had also been outbid for Bank Central Asia in Indonesia by US hedge fund group Farrallon.

Smarting from such defeats, StanChart seems to be clearly up for the fight with this deal. Given there is so much interest in the stake - (which is worth around $240 million) - analysts believe bidding could go quite high. Recent deals have tended to be around the 1-1.5 times book level, although OCBC paid 2.5X book for 22% of Bank NISP. Bank Permata, given its rarity value, could be sold at the top end of that range.

However, the structure of the sale - 71% on offer with a government overhang of the remaining shares and an inability to change the brand - could dent some appetites. Having100% with full control would clearly be worth more to buyers and seller alike, although not to the Indonesian parliament, which mandated the structure of the sale, for whom some measure of retained control is said to be the main agenda.

Therefore StanChart's creativity in teaming up with Astra to extract the most value out of a difficult situation could enable it to bid higher than any other grouping. The final decision on the winning bid is expected in the fourth quarter 2004.

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