Indonesia confirms Farallon wins biggest bank


Indonesian stocks, which weathered a torrid 2001, showed caution despite the morale-boosting BCA sale

By Alex Frew McMillan
CNN Hong Kong

JAKARTA, Indonesia (CNN) -- Indonesia confirmed the shock news on Thursday that dark horse U.S. investment group Farallon Capital Management has won Indonesia's largest retail bank.

Laksamana Sukardi, the Minister of State Owned Enterprises, declared a team led by the San Francisco-based venture capital and fund management company as the winner.

That means British bank Standard Chartered has missed out on an opportunity to break into the Indonesian banking big time yet again.

It walked away from a deal to buy Bank Bali in December 1999, after first buying a 20 percent stake, then discovering wholesale irregularities at that bank.

Given its experience in Asia, StanChart had been heavily favored to pick up BCA, the main retail bank in Indonesia.

But Laksamana said Farallon is instead buying 51 percent of BCA at 1,775 rupiah per share. That comes out at $531 million.

It is well beyond the $450 million industry insiders had predicted.

A worker demonstration and political infighting in Indonesia has held up the long-awaited BCA deal.

A shock decision

When contacted, a Standard Chartered spokeswoman said the bank had no immediate reaction to losing the bidding. She did not return a call to CNN.

StanChart, as the bank is commonly called, was the clear favorite, based on its Asian bank operations and large retail presence in Hong Kong, the region's banking hub.


The sale funnels a much-needed $531 million to the Megawati administration, and likely guarantees IMF loans

Farallon did not previously own a retail bank at all.

But the International Monetary Fund applauded the sale. It has long required Indonesia to sell a majority stake in BCA, as a key part of reforms in Indonesia.

"We welcome the sale of BCA," David Nellor, IMF senior representative in Indonesia, told Reuters news agency. "It should help bolster investor confidence."

The sale likely means the IMF's $4.5 billion loan package will continue.

Farallon was always considered a dark horse. Unlike Standard Chartered, it pledged not to cut any jobs for the next two years.

Overseas sale drew ire

Selling a 51 percent stake in BCA to an overseas companies has rankled employees of the bank, which controls the bulk of banking households in Indonesia.

Farallon's victory carries a political burden -- which may or may not prove positive.

San Francisco, California-based Farallon is buying into Indonesia, the world's most-populous majority Muslim nation, at a time the United States government is ratcheting up pressure on Southeast Asia to combat terrorism.

The United States has identified Indonesia, the Philippines, Malaysia and Singapore as home to terrorist cells.

Much needed money

The Indonesia Bank Restructuring Agency, IBRA, owns 60.3 percent of BCA, which it took over from the Salim family after the Asian financial crisis of 1997-98.

The sale will grease the wheels for the continuation of the IMF loan program to the country and give President Megawati Sukarnopturi's administration some much needed cash.

The announcement of the winner had been expected on Monday. But the sale, which Indonesia also put off in December after missing a self-imposed deadline, has dragged on.

Sources told CNN that political infighting between IBRA chairman I Putu Gede Ary Suta and Laksamana, the cabinet member who oversees IBRA, delayed the announcement.

Laksamana, who always claimed final say over the sale under Indonesian regulations, said he wanted to wait to inform employees before announcing a victor.

Somewhat surprisingly, stocks sold off in Indonesia on news of a winner. BCA stock ended down 3.8 percent at 1,900 rupiah.

The main Indonesian stock index fell 1.27 percent to 467.991. Stock watchers said investors were showing caution because Farallon's victory was unexpected and markets are closed for a holiday in Indonesia on Friday.