International -- Asian Business: Indonesia
The Haunting of Bank Bali (int'l edition)
A secret buyback bid puts financial reform at risk
Rudy Ramli is a man on the run. The former CEO of Bank Bali, who was sacked when the government nationalized his failed bank in July, sleeps in a different Jakarta hotel every night. He's hiding from Indonesian auditors, police, and the press, all of whom want to ask Ramli about a scandal involving payment of an absurdly high fee to a company connected with the ruling party. They also want to know whether he is trying to regain control of the bank by secretly buying up shares. Reached on his mobile phone, Ramli confirms that he is attempting a takeover, but won't reveal the details or his location. "Why should people know where I am?" he asks.
Ramli's maneuvers are the latest twist in the ongoing scandal at Bank Bali. Just a few weeks ago, London's Standard Chartered Bank finally seemed ready to lock up a deal with the Indonesian government to take over the bank. But in August, it was discovered that anonymous investors had managed to accumulate a 39% stake in Bank Bali by buying shares through a German clearinghouse. Behind the move, finance sources say, is Ramli.
Even though Jakarta had nationalized Bank Bali in July, it didn't get around to wiping out the stakes of existing shareholders. This was supposed to happen in late October, after Standard Chartered closed its $123 million acquisition of a 20% stake. Bank Bali then was supposed to issue new stock that would dilute the holdings of existing shareholders to negligible levels. But the investor group moved before this could happen. So even though Standard Chartered was given management control in July, the shadow investors now may have a big enough stake to block the sale.
If the Standard Chartered deal falls apart, the damage to Jakarta's financial reforms could be immense. "Other potential foreign investors are going to be watching this extremely important transaction to see how it progresses," warns Douglas K. Beckett, head of Standard Chartered's management team at Bank Bali. A probe by PricewaterhouseCoopers is due to be completed in early September. Both the International Monetary Fund and the World Bank have threatened to cut off further funding for Jakarta until it clears up the mess. "An unsatisfactory solution would be a disaster scenario," said IMF Asia-Pacific Director Hubert Neiss.
Such shenanigans are why the flap over Bank Bali, once regarded as Indonesia's soundest private bank, has widened into a scandal that now touches every aspect of Indonesia's financial system as well as the administration of President B.J. Habibie. At the insistence of the IMF, which lined up a $43 billion bailout for the country in 1997, the central bank, Bank Indonesia, is being investigated now as well.
The saga began in March, when Bank Bali, on the verge of collapse from bad loans, applied for government rescue. But the bank's management was not deemed by Indonesia's central bank to be "fit and proper," and Bank Bali was led into negotiations with foreign investors, including Citibank, ABN-AMRO, GE Capital, and Standard Chartered. In April, Standard Chartered won the bid, offering $57 million for 20% of the bank, with the option of buying the remainder. But in July, auditors PricewaterhouseCoopers, found that the bank under Ramli had diverted $80 million to a company controlled by the ruling Golkar party's deputy treasurer. Police, auditors, and bankers say that money was destined to bankroll the reelection efforts of President Habibie.
The central bank has said it found evidence of "criminal acts" in the Bank Bali case, and Justice Minister Muladi has ordered a wider investigation. Police are awaiting Habibie's permission, in accordance with Indonesian law, to question the Golkar deputy treasurer, Setya Novanto. Novanto has said his firm took the $80 million as a fee for collecting problem loans that Bank Bali had made to other nationalized banks. Bankers say the fee was ridiculously high and that Bank Bali had no reason to pay it because the government had already guaranteed the loan repayments.
For Standard Chartered, the payment--made in early June--doubled the cost of buying the bank. After the audit revealed that funds had gone missing since the April bid, Standard Chartered had to up the ante--to $123 million. Otherwise, Bank Bali would have been in violation of capital adequacy requirements. In return, Standard Chartered was awarded management control for three years, starting in July.
Standard Chartered is continuing to fight because it has a lot to gain in Bank Bali. The British institution has had a presence in Indonesia since 1863, but government restrictions had allowed it to open just three branches. The acquisition would give it 280 branches and 1 million customers nationwide. "Bank Bali has great brand equity" and fits Standard Chartered's growth strategy, says Beckett. But banking regulations have changed since the Asia crisis, allowing multinationals to open branches freely. Rivals such as Citibank have decided to open their own branches rather than purchase an existing bank. "Foreign banks across Asia are finding that what's in these banks is worse than they expected," says Piyush Gupta, Indonesian country manager of Citibank.KICKED OUT. Now, Standard Chartered is demanding that regulators clear the air. "We are concerned about the fact that nearly 40% of the shares in this company are held by undisclosed parties," admits Beckett, who has asked regulators for full disclosure. The concern is that the owner of the shares could preempt Standard Chartered's offer and thus gain management control.
Former CEO Ramli won't admit he's the one buying the shares. He'll only say he is working to regain control at a future date. "They kicked me out," he laments. A statement issued by Ramli's lawyers denied any wrongdoing in the Bank Bali scandal and said Ramli did not pocket any of the money: "Nothing went to Rudy Ramli. All Rudy Ramli left with was an empty briefcase."
Until the investigation is concluded, Indonesian banks will continue to have a credibility problem. That would greatly complicate plans by the Indonesian Bank Restructuring Agency to sell off eight other banks. But regardless of the outcome, the world has already seen what happened to Standard Chartered. Surely, they now know one rule in any purchase of an Indonesian bank: caveat emptor.By Michael Shari in JakartaReturn to top