After years of reform and restructuring, Indonesia's banking sector is profitable again. And the coming sales mark the last of the nationalized banks to return to private hands. Bidding is expected to be fierce despite some nagging due-diligence issues. The trio of banks up for grabs are Bank Negara Indonesia (BNI), Bank Rakyat Indonesia (BRI), and Bank Mandiri. The government owns 58% of BRI, 69% of Mandiri, and 99% of BNI. Those stakes will be pared back to about 51%, which still leaves the government with an ample voice in bank management. Even so, banking industry officials say Mandiri, Indonesia's largest bank, with assets of $26 billion, could raise $2 billion.
That would represent a big premium over the $490 million San Francisco-based investment fund Farallon Capital Management LLC paid two years ago for 53% of No. 2-ranked Bank Central Asia (BCA). The upcoming sales are aimed mainly at institutional investors, portfolio managers, and existing owners of banks seeking to raise their stakes. Foreign banks such as Citigroup (), the largest foreign bank in Indonesia by assets, are expected to stay on the sidelines. That's because the market is wide open to them, and they already have substantial market share. London-based Standard Chartered, for instance, bought Bank Permata, Indonesia's seventh-largest, in a joint venture in October, 2004, with local auto assembler Astra International. "Indonesia is now one of the most open markets for foreign banks in Southeast Asia," says Hank Mulder, country manager for ABN Amro Indonesia in Jakarta.
Indeed, the Jakarta offices of Perusahaan Pengelola Aset (PPA), the Indonesian state asset-divestment agency, have been overrun lately with bankers and lawyers chasing deals. In the past few weeks the agency has sold nearly a billion dollars' worth of shares in several small banks. Foreign institutions see their investments as a bet on continued strong growth in the Indonesian economy and its banking sector. Ferry Y. Hartoyo, an analyst for DBS Vickers in Jakarta, notes that loan growth is strong -- nearly 15% a year -- and capital-adequacy ratios have surged to around 20%.CROWDED FIELD
The government's motive for the sell-off is simple. It desperately needs the money. This year's budget deficit, largely owing to fuel subsidies, is expected to top $5 billion. Moreover, Jakarta wants to recoup as much as it can of the $44 billion it spent bailing out the banking sector in the wake of the 1997-98 Asian financial crisis. Plus, financial authorities hope the sales will spur consolidation in an industry plagued by excess capacity. Indonesia's top 13 banks account for 70% of banking assets, while 120 others fight for the remainder. Most are too tiny to compete effectively. "Indonesia's banking market is probably still the most fragmented in Asia," says Tan Lai Peng, bank analyst at Fitch Ratings in Singapore.
Investors have shown an appetite for the privatized banks. In late September the PPA raised $215 million from the sale of its remaining 5% stake in BCA. And in August the government sold a 10.5% share in Bank Danamon, once owned by the powerful Admadjaja family, for $274 million. Jakarta had already sold its majority share in Danamon in 2003 to Deutsche Bank () and Singapore's government investment firm, Temasek Holdings. They paid $300 million for a 51% stake -- regarded as high at the time. But with new investors ready to pay billions, that now seems like a bargain. By Assif Shameen in Singapore