Ten Billion Dollar Club

Seven companies listed on Indonesia Stock Exchange (IDX) currently have market capitalization over US$10 billion.

They are Astra International (US$19 billion), Telkom Indonesia (US$18.3 billion), Bank Central Asia (US$15.5 billion), Bank Mandiri (US$12.25 billion), Perusahaan Gas Negara (US$11.34 billion), Bank Rakyat Indonesia (US$11.16 billion), and Unilever Indonesia (US$10.4 billion).

Combined, these Seven Giants have market capitalization of US$97.95 billion.

Looks like the 10 Billion Dollar Club will not get new member soon. Why? Because, the eight largest company, United Tractors, only has market cap of US$6.9 billion. Unless this company will grow at least another 45% this year.

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Mandiri takes No.2 spot

State-bank Mandiri is the largest bank in terms of assets (Rp366.5 trillion as of Sept 2009), but the bank is only second behind Bank Central Asia (BCA) in terms of market capitalization (or value, if you like). Still, Mandiri's stock price outperformed Bank Rakyat Indonesia (BRI) to take the number two spot from BRI.

According to Yosefardi.com, Mandiri has market capitalization of Rp97.4 trillion as of December 30, 2009, higher than BRI (Rp93.4 trillion), but still far behind BCA (Rp119.6 trillion). But in terms of market value per asset, BRI is better than Mandiri, because BRI's asset was only Rp275.99 trillion as of Sept 2009.

Mandiri's stock price surged 132% this year, while BRI increased 67%. BRI reported net profit of Rp5.3 trillion in Jan-Sep 2009, while Mandiri booked Rp4.62 trillion profit in the same period.

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Haryanto Budiman & Mandiri's mounts of bad debts

Haryanto T. Budiman has been appointed coordinator to settle bad debts at state-owned PT Bank Mandiri Tbk. It's in his hands the fate of Djajanti, Kiani Kertas, RGM, Great River etc. Who is he?

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Bimantara divests Trans Javagas Pipeline

PT Bimantara Citra Tbk has divested all its shares in PT Trans Javagas Pipeline (TJP) to PT Kapital Usaha Sempurna, an unknown entity at undisclosed price.

TJP was established by Bimantara (49%), Tranaco Utama (28%), Adhiraksa Tama (5%), Pertamina Saving & Investment (10%), Bank Mandiri Pension Fund (3%), and PLN Pension Fund (5%).
TJP built the controversial 430 km gas pipeline in 1992 with USD440 million investment as a BOT project. Under the contract with Pertamina, the pipeline should be transfered to Pertamina by 2014.

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Antam refinancing

BCA & Bank Mandiri provide USD121 million to refinance PT Aneka Tambang (Antam) Tbk's bond issued in 2003. Antam issued USD200 million bond in 2003 to finance its FeNi III project. The new facility bears interest of SIBOR+1.5% (6.9%) with maturity in five years. BCA provides USD71 million and Mandiri at USD50 million.

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Holding vs merger of state-owned banks

Responding the Central Bank's Single Presence Policy (SPP), government has launched an initiative to establish a holding company for state-owned banks (Mandiri, BNI, BRI, BTN & BEI). But some prefer merger of these banks. Which one is better?

Legislator Drajad Wibowo (former commisssioner at BNI) told Koran Tempo today that merger would be better to create a stronger bank. His view is completely different with his stance few months ago when he agreed on a BNI-BTN merger plan but rejected a Mandiri-BNI merger arguing the latter would create an overlap functions.
State-owned enterprises minister Sugiharto said earlier that government is reviewing the plan to respond Central Bank's policy. Establish a holding bank, either vertical or horizontal structure, is among the options available besides the merger. Kompas quoted Sugiharto last week saying out of so many options available, the holding company is the option left for further review. The review would be to decide whether to pick one bank as the operating holding or establish a new non-operating holding.
So far, there is no clear guideline from government about its policies on state-owned banks. VP Jusuf Kalla prefers a merger of Mandiri-BNI because of their similar functions, but keep BRI and BTN as independent banks with speficic tasks (BRI for SMEs, and BTN for housing). Guess why?
Previously some politicians argued against the merger saying that would be politically too sensitive. But Drajad told Tempo that a merger would be more sensible politically. Drajad's colleague, Dr Aviliani, who is also member of board of commissioners at BRI, prefers holding than merger. I'm not sure whether her view represents the BRI board or not. Drajad & Aviliani were economists at INDEF (think tank).
After the fuss over SBY's newly established team, it's interesting to watch the competition between the two camps (SBY & JK) over the holding vs merger issue.
Early this year, government scrapped a BNI-BTN merger plan on strong opposition from legislators and the management/workers of BTN. So, I just can't imagine the scale of political opposition on the merger of 5 state-owned banks.
Merger is also considered a violation of Govt Regulation No. 28/1999 about the merger, consolidation, and acquisition of banks which stated the bank emerged of the merger should not have assets more than 20% of the total national bank assets. The merger of 5 state banks would create a bank with 38% of national bank assets, Kompas reported.

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Bumi buyback & Lapindo divestment

PT Bumi Resources Tbk has started shares buyback late last week with initial purchase of around 9 million shares at Rp760-770/share. Bakrie-linked brokerage firm PT Danatama Makmur was the agent for the buyback. Plenty more to follow, 1.9 billion shares with total value around US$250 million.

Meanwhile, PT Energi Mega Persada Tbk told JSX yesterday that it's looking for financing of Lapindo Brantas Inc loans related to US$120 million notes issued by Malacca Brantas Finance BV.
Under the divestment plan, Energi needs to settle third party loans chanelled to Lapindo Brantas. Energi has signed sales & purchase agreement (SPA) with Bakrie Oil and Gas Limited, in which Bakrie would pay US$2 for Energi shares in Lapindo.
Lapindo Brantas Inc has six development wells and five exploration wells. In the first half 2006, Lapindo contributed 15% of Energi's total revenue.
According to Energi, total losses calculated at Lapindo's well blast that turned into a disaster could reach US$106 million. Based on Section VI of PSC agreement, Lapindo claimed it deserved cost recovery from government. Insurance coverage is reported at US$27.5 million.
So far, Lapindo got Rp109.2 billion funding from Energi's IPO and another Rp19.7 billion from a rights issue. On top of these, Lapindo also got loan from the US$120 million notes arranged by Merrill Lynch. It's not clear how much loan chanelled to Lapindo.
Malacca Brantas Finance BV issued the 3-year LIBOR plus 8%-8.5% loan to refinance US$50 million loan to PMA Investment Advisors Ltd and Bank Mandiri, while the remaining US$70 million to finance Malacca PSC and Brantas PSC.
"According to SPA, one of the requirements is to settle all third party debts. For that purpose, we're in the process to get financial resources," Energi told JSX.
So, it's clear, Energi could safely walk away from Lapindo disaster, leave it to government to recover all the cost incurred, and the environment for the unstoppable mudflow.

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Single Presence Policy & Bank Consolidation Sweeteners

Indonesia Central Bank had issued two important decrees that would accelerate consolidation in the banking industry. The first, Bank Indonesia Regulation No.8/16 on single presence policy and the second, BI Reg No.8/17 on incentive packages for bank consolidation. Which banks should merge under the new policy? What's happen to state-owned banks? How about foreign-owned banks? Small banks? What are the sweeteners?

Exerpts from SPP according to BI Reg No.8/16 are as follows:
1) Parties could only be controlling shareholder in one bank, except
(a) Controlling shareholders of two banks with different banking principles, ie, conventional and sharia. Banks fall into the category are Bank Mega with Bank Syariah Mega or Bank Mandiri with Bank Syariah Mandiri, etc
(b) Controlling shareholder in two banks in which one of them is a joint venture bank. Like in the case of Standard Chartered and Bank Permata (JV between Stanchart and Astra Group), or branches of foreign banks
(c) bank holding company established by controlling shareholder to control and manage directly the shareholdings in more than one bank,

2) There are options for those who controls more than one bank:
(a) Divest shares partly or in full,
(b) merger
(c) establish a bank holding company by establishing new company as the holding company or appoint one of the banks as holding company.
3) The bank holding company should be a company registered under Indonesian law.

What are the sweeteners for those who want to consolidate their banking business?
WRITING IN PROGRESS

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The Richest Indonesians & The Ironies

What a coincidence! Out there, Dow Jones quoted Forbes Asia's rich list, naming Sukanto Tanoto (owner of Raja Garuda Mas/RGM) as its Indonesia richest. At home, newspapers quoted SOE Minister Sugiharto pledge his support for state bank PT Bank Mandiri Tbk to take legal action toward recalcitrant debtors. Mandiri had named RGM as one of the debtors with no good faith.

While it's difficult to verify the exact figures, Sukanto's wealth according to Forbes reached US$2.8 billion, well above Putera Sampoerna (2.1), Eka Tjipta Widjaja (2), Rahman Halim (1.8) or R. Budi Hartono (1.4) and Aburizal Bakrie (1.2). In the previous list, Forbes named Halim as Indonesia's wealthiest while Sukanto was not even in the top five list. Wondering how the Forbes list has changed so significantly in the last few months.
Detik.com reported Sukanto is still in the police's fugitive list. But I'm not sure whether he is listed there still.
It's true that Sukanto once named a fugitive. His name also linked closely with Unibank which was closed down in 2001 but none held responsible for third party liabilities in the bank. The case isn't closed yet.
Sukanto's wealth mainly derived from palm oil business. He has pulp & paper empire, and recently oil and gas as well.
Surprisingly, no Sjamsul Nursalim in the top 10 list. Riady family, Tommy Winata, and Mum'in Ali Gunawan are out of top 10 as well. Riady family is partnering with Forbes for Indonesian edition, scheduled early next year.
Like it or not, agree or disagree, Forbes list could help Indonesia's tax officers chasing their tax payments or Bank Mandiri's bargaining position on bad loans. The list also useful for politicians, regent, governor candidates, or hopeful president candidates.
If you follow years of Forbes’ rich list, there is no significant change on the names of Indonesian richest. The difference is only on the amount of wealth & the rankings. The wealthy Indonesians could be categorized in several groups based on how they got their fortunes.
First, cigarette groups. We have Sampoerna family (even though they sold out the cigarette business to Phillip Morris), Wonowijoyo (Gudang Garam), Hartono (Djarum), and Peter Sondakh (Bentoel).
Second, forestry & plantation groups. We have Eka Tjipta Wijaya family (Sinar Mas Group), Sukanto Tanoto (Raja Garuda Mas), & Prajogo Pangestu (Barito).
Third, consumer goods. We have Salim and Wings Group.
Fourth, energy & engineering groups. We have Bakrie family, Panigoro (Medco), Kris Wiluan (Citra).
Fifth, property group. In this group we have Tan Kian (Dua Mutiara), Haliman Trihatma (Podomoro), Tommy Winata-Sugianto Kusuma (Artha Graha), Riady Family (Lippo).
Sixth, manufacturing. In this group we have Nursalim (Gajah Tunggal) for example.
So, mainly they got the fortunes from Indonesia’s rich & cheap resources (natural & human).
While most of these groups have expanded overseas (mainly China, India, or Brazil), Indonesian operations are still their main source of wealth. Most of these conglomerates were hurt by financial crisis, with the exception of cigarette groups.
But they have recovered in the last few years, thanks to the generosity of Indonesian people, the taxpayers. The state bailed out their bad debts. Some surrendered assets, but others managed to escape the financial responsibility easily.
Salim Group, for example, surrendered assets in 107 companies to pay around Rp56 trillion (US$6 billion) debt following the turmoil at Bank Central Asia (BCA). Government sold almost all the pledged assets with recovery rate of around 35%. Nursalim also did the same to pay his Rp28 trillion (US$3 billion) debt, with lower recovery rate.
Government also spent almost US$2 billion to bail out Bank International Indonesia (previously owned by Eka Tjipta’s Sinar Mas, currently controlled by Temasek).
That’s why there is almost no significant change in names listed in Forbes, the latest edition and in 1990s. The fact that Sukanto & Eka Tjipta are listed as number one and third in the ranking sparked criticism about how they created the wealth.
Both Sukanto & Eka Tjipta have strong pulp/paper & plantation (mainly crude palm oil) businesses through APRIL (RGM) Holdings & Asia Pulp & Paper (APP) respectively. Both groups have been the subject of continues allegation of environmental groups over massive deforestation in Sumatra Island.
WWF report few months ago said that APRIL and Asia Pulp & Paper (APP), the Indonesian paper producers, are accelerating the deforestation of Sumatra's jungles in spite of a bid to portray themselves as green.
According to the report, APP has been responsible for about 80,000 hectares of natural forest loss every year, equivalent to roughly one-half of the Indonesia province of Riau's annual forest loss since 2002. As of 2005, the company controlled nearly one-fifth, or 520,000 hectares, of the natural forests left on Riau's mainland. All these forests are under threat, as are any additional forests that APP acquires in its quest to fill its wood supply gap and expand pulp production.
WWF didn't publish the same press release on APRIL. But WWF Monitoring Brief June 2006 elaborated the organization's analysis on APRIL's activities.
Jikalahari (Riau NGO alliance) investigators have found evidence that APRIL's mills accepted wood from legally questionable third party source as late as May 2006. WWF admitted in the report that it calls APRIL to stop sourcing timber from this area until completion of the government legal verification process.
One NGO leader wrote cynically in Indonesian media recently that if you want to be rich, do the forestry business in Indonesia like Sukanto & Eka Tjipta. Other names listed in the Forbes report also have been regularly accused of various illegal practices such as fraud on reforestation funds or involvement in drugs & narcotics trading, gambling operation, or fishy deals with government and the military. But none of them convicted or worse various interest groups make huge chunk of money from the allegations on these richest men.

/Named a Suspect/
Apart of environmental concerns, the Forbes report has also been responded by Indonesia’s largest lender (by asset), Bank Mandiri, which happens to be the largest lender to Sukanto’s RGM. The bank has, several times, classified RGM as the debtor without good faith in settlement of almost US$500 million debts. Mandiri demands an increase in debt installment following the huge jump in pulp prices worldwide.
The day Forbes announced the rich-list, Indonesian minister for state-owned enterprises (Mandiri’s shareholder) pledged his support for Mandiri’s plan to take legal action against recalcitrant debtors, especially RGM. RGM denied all the charges arguing it follows the debt restructuring agreed upon few years ago.
A director at Mandiri was quoted by Indonesian newspapers saying, “You may rich, but pay your debts,” responding the list.
But it’s the police who surprised many when it announced the plan to reopen the investigation on Sukanto, not for the alleged environmental crime or his debts at Mandiri, but on a suspected banking crime that almost untouched in five years.
Just days after Forbes published the list, Indonesian police announced that it has resumed the investigation on Sukanto, named a suspect in a banking crime few years ago. Police declared that the case, involving Unibank---a bank initially owned/controlled by Sukanto and his wife Tinah Bingei, has been reopened after five years of almost no significant progress in investigation despite the fact that Sukanto had been named a suspect.
Unibank was closed down in 2001 leaving the state paying all third party liabilities (Rp3.9 trillion, almost US$400 million) with no shareholders held responsible. Sukanto was named a suspect on irregularities of export L/C worth US$230 million.
"Based on a meeting between Police Chief and Attorney General in August 2006, Sukanto's case has to be reopened and his status is still as suspect. The case is being handled by police team for corruption crime (Tipikor)," Paulus Purwoko, chief of public relations division at National Police Headquarter as reported by Indonesian media.
The sudden announcement failed to surprise the media at the time of eroding trust on the country’s campaign to fight corruption. Many raised the question, would the police be serious this time? Why the police reopen the case after so long? Could this be just part of ‘political’ game?
"Whatever the results might be, the reopening of the case has made Sukanto, well-known for his generosity overseas, shivering," a journalist from respected magazine commented the move. So far, police has not confirmed yet on when they would summon Sukanto for investigation.
The fellow journalist mentioned about Singapore-INSEAD's Tanoto Library or Carnegie Mellon's Tanoto Professorship. The owner of Raja Garuda Mas (RGM) also established Tanoto Foundation, which provide scholarships.
It’s not about his donations that make people doubt the investigation, but mainly the power politics in the country’s corrupt-legal system. Police might finalize the investigation, but state prosecutors may drop the case like what’s happened with the recent corruption allegation on Eddie Widiono (state-owned electricity company PLN).
Other intriguing issue is the unavailability of legal cooperation between Indonesia and Singapore. While Sukanto normally come to Indonesia, he stays in Singapore. “The problem, we have no bilateral agreement on this,” sighed the deputy attorney general Basrief Arief, who is also the Chief of Corruptors Hunting Team.
Besides, the five-year time lag since the Unibank’s closure in October 2001 is critical especially when it comes to witnesses. That’s why Attorney General’s Office said they would start the investigation all over again. This is clearly a big test for the country’s tattered image on corruption eradication campaign. Without serious efforts to end bad governance in Indonesian business, we can’t expect a cleaner sheet in the future rich lists.

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State banks in doubt, blame the traffic

An expat blog in Jakarta has the title...when in doubt, blame the traffic. I modify it when I read the article posted by Tempointeraktif.com on Sunday that bankers at state-owned banks are in doubt of whether they would be able to give write-offs or haircuts to clean up their balance sheets despite the recent Supreme Court decision.

Tempointeraktif.com quoted Bien Subiantoro, director of PT BNI Tbk, the bank with the second most bad loans in the country behind PT Bank Mandiri. Mr Subiantoro said, "I'm not too optimistic. Even though the Supreme Court cleared the way, I'm not sure yet whether the officers at state-owned banks would have the guts to give haircuts especially considering the current situation of our legal system."
He further said, "There is psychologycal constraints."
Besides, as Mr Subiantoro said, there are few details of regulations needed to implement the new policy.
Read my previous posts for backgrounds:
1) SOE's bad loans could be written off 100%

2)Mandiri-BNI bad loans settlement: Long way to go

3) Fresh maneuver on state banks bad loans

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SOE's bad loans could be written off 100%

Supreme Court had approved the separation of state assets and state-owned enterprises assets, government officers claimed. This would pave the way for SOE banks to write off up to 100% bad loans owed by SOEs, but only 5% write off for private companies.

Secretary to MSOE Muhammad Said Didu, as quoted by Tempointeraktif.com, said with the Supreme Court's decision, there would be no more excuses for SOE banks than to compete with private-owned banks.
"Let's say that SOEs bad loans could get write off up to 100%, but those of private companies up to 5% only," he said.
So, there will be different settlement for PT Garuda Indonesia (SOE) and PT Argo Pantes Tbk (listed-private company), both with bad loans at state-owned PT Bank Mandiri Tbk. Mandiri's bad loans reached Rp25.9 trillion (almost US$2.8 billion). Another state-owned bank PT BNI Tbk recorded Rp10.04 trillion (US$1.1 billion) bad loans.
What people need to watch is the implementation of this policy, especially to minimize moral hazard at state-owned banks.

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Mandiri-BNI bad loans settlement, long way to go

State-owned banks, especially PT Bank Mandiri Tbk and PT BNI Tbk, have to wait few more months to get a clearer picture of how to handle their huge bad loans. Why?

Minister for state-owned enterprise (MSOE) Sugiharto admitted yesterday that Supreme Court had returned the draft revision of regulation on non-performing loans (NPL) to the ministry for another review. He didn't disclose Supreme Court's respond. But Investor Daily quoted sources at Supreme Court saying it's up to the government to decide on what to do with the NPLs. So, back to square one.
Government, desperate to clean up the state bank's balance sheets from billions of bad loans, actually wanted to get legal clearance from Supreme Court on policies like haircut, write-offs, or bad loans offloading mechanism.
Sugiharto interprets the Supreme Court respond as a good one, just like what the government expect. The idea was to revise Govt Reg No. 14/2005 about Mechanism to Write-off State/Local administrations debts, especially erasing Article 19 and 20. Under the revised regulation, write-off or haircut should not conducted through Ministry of Finance but could be done by SOEs based on Limited Liability Law and SOE Law.
But the question, whether government or state-bank officials dare to make such decisions without have to worry the future prosecution/investigation under Anti-Corruption Law? Oops, most of them are ping-pong athletes!

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The "Shadow" Directors of Great River resigned

Worsening situation and uncertainties over the future of PT Great River International Tbk, once the largest textile and apparel manufacturer in Indonesia, the "shadow" directors of the company had tendered their resignation to Capital Market Supervisory Body (Bapepam) as of September 1st.

The "shadow" directors (appointed as power of attorney facilitaed by Bapepam) wrote to Jakarta Stock Exchange (JSX) last week that they would surrender the daily operation of the troubled Great River to creditors (Bank Mandiri, Bank Mega, & Nikko Securities).
The "shadow" directors are Kristanto Setyadi, Doddy Soepardi, D Swantopo, Albert Mario Setyawan, and Hasannudin Rachman.
They argued in the letter that Great River, controlled by Sunjoto Tanudjaja family, would only survive with the fresh capital from new investor. Without significant working capital, Great River is facing mounts of overdue payments to workers, suppliers, royalties, and decreasing orders from export market.
Read related article on Sunjoto at The Fugitive: Sunjoto Tanudjaja.

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Indonesia banking consolidation

A decade ago, Indonesia had 240 banks. Financial crisis in 1998 had cut significantly the number to 131 banks at the moment. It was the crisis that forced the consolidation in the country’s banking industry. But with per capita income of below US$1,500, the number is way too big and it cost the country a huge inefficiency of banking operations.

Under Indonesia Banking Architecture (API) launched in 2004, entry to the market has been tightened with minimum capital of Rp3 trillion (US$335 million) to open a new bank. Besides, banks, including the banks established by regional administrations, should have minimum capital of Rp100 billion by 2010.

In June 2005, Bank Indonesia (the central bank) launched the banking consolidation policy to anticipate the implementation of Basel II Accord by 2008. Under the policy, banks should have minimum core capital of Rp100 billion (US$11 million) as of 2010 and a minimum of Rp80 billion by the end of 2007. Those who failed to meet the requirement will be punished with limited operation such as maximum amount of third party funds at 10 times of core capital and maximum loans of Rp500 million (US$550,000).

The central bank actually hoped for voluntary mergers before 2007. But there are only few voluntary mergers and acquisitions so far. Some small-medium banks have tried to raise capital through stock market, but the progress has been slow. The latest major merger was back in December 2004 when three banks (CIC, Danpac & Pikko) merged. Last year, two banks (Arta Graha & Inter Pacfic) merged and Sinar Mas reentered the banking business with the acquisition of small bank PT Bank Shinta. But overall, the consolidation has been too slow.

Currently total capital of 131 banks is Rp120.8 trillion or average of Rp916 billion. It seems bigger than the requirement of Rp100 billion. But the Top 20 banks contributed to most of the capital and leave others with big question mark. There are way too many banks that serve one or two customers only, sometimes related to the owners or related parties/families with core capital less than US$10 million.

According to financial report as of June 2006, the Top 20 banks has combined capital of Rp114 trillion which leaves another 111 banks with combined capital of only Rp6 trillion or average of Rp54 billion. Most foreign-owned banks in the country have core capital above Rp100 billion with Bank of America as the only exception, raising the question of its future in Indonesia.

Profitability is also a big issue in Indonesian banking industry. As of May 2006, total assets in Indonesian banking system is Rp1514 trillion (around US$165 billion) while total profit is Rp15 trillion, reflecting a return on asset (ROA) of 1%. But why these banks don’t want to merge?

Central Bank and bankers argues that banking consolidation needs tax incentives, the authority of government. But no such incentives provided.

Desperate on the bank’s owners to merge voluntarily and the slow progress in banking consolidation through capital requirement, Bank Indonesia then launch the single presence policy, which practically forbid a company or someone owns more than a bank. But the policy most likely would only consolidate big banks, not the small banks. For example, Temasek-related banks (Danamon, BII & DBS Indonesia), Khazanah (Bank Niaga & LippoBank), Panin Group (Panin & Victoria), Standard Chartered (Standard Chartered Indonesia & Bank Permata), or Rabobank (Rabobank Indonesia and two banks it acquired recently—Bank Haga and Hagakita, from Djarum Group which controls Bank Central Asia/BCA) and ANZ-ANZ Panin.

If the central bank fair enough to implement the policy, state-owned banks should be merged or consolidated as well. But in normal situation, it’s difficult to merge state-owned banks. Efforts to merge PT Bank Negara Indonesia (BNI) Tbk and PT Bank Tabungan Negara (BTN) collapsed last year on political maneuvers from the proponents and opponents.

Vice President Jusuf Kalla indirectly opposed the idea to merge state-owned banks arguing they have different functions in the economy. Strong resistance has always been at the state-owned banks themselves, especially workers and the management, something the government can’t just neglect.

This is great dilemma and political test for Indonesian government as neglecting the consolidation based on single presence policy would be discriminative and against the fair competition law.

Confronting such dilemma, Central Bank has softened its stance on single presence policy. Instead of forcing the owners to divest or merge the banks, they’re given option to establish a holding company to manage the banks.

Some banks have responded the move in different ways. Djarum Group, who owns the largest private bank PT Bank Central Asia (BCA) Tbk with Farallon Capital, for example, decided to sell two other banks (Haga & Hagakita) to Rabobank last month. But this had leave Rabobank with further question, whether it will merge its subsidiary with the two banks. Singapore’s OCBC has decided to merge OCBC with NISP.

Singapore’s Temasek is yet to decide the future of its banking ownership in Indonesia (Danamon, BII & DBS Indonesia). Malaysia’s Khazanah has repeatedly denies speculation about merger of its Indonesian banks (Niaga & Lippo). While market has speculated the possible offloading of Niaga and keeping LippoBank, Khazanah has option to merge Niaga & Lippo or establish a new holding. The same would apply to Stanchart or Rabobank.

How about the small local banks?

Some small-medium banks have entered the stock market to raise capital. There are some, which plans to float their shares in the coming months. But most of them are being the targets of acquisition by bigger groups. There are around 20 banks in this category. And we will see more mergers and acquisitions to come.

Further consolidation is subject to Central Bank’s firm decision to implement the architecture it drafted. Under the architecture, there will be three categories of banks operating in Indonesia. First is international bank, those with capital above Rp50 trillion (US$5.6 billion); second, national bank (capital from Rp10 trillion to Rp50 trillion); and focus bank (Rp100 billion to Rp10 trillion). None of the banks operated in Indonesia falls into the first category. A merger of state-owned banks could create one. And only three existing banks are eligible to get the national bank status with nation-wide operation.

Such categorization would consolidate further the banking industry and streamlining the operation of many banks which then boost average assets per customer in most banks and reduce significantly the banking operational costs. We will see more the merger of small-to-medium size banks to get the status as national banks.

Those who will be affected by single policy

Group Indonesian Banks

OCBC OCBC Indonesia
Bank NISP
UOB UOB Indonesia
Bank Buana
Khazanah Niaga
Lippo
Temasek Danamon
BII
DBS
Stanchart Stanchart Indonesia
Permata
Rabobank Rabobank Indonesia
Haga
Hagakita
Panin Panin Bank
ANZ Panin
State-owned banks Mandiri
BRI
BNI
BTN
BEI

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Ministers, The Most Photographed & Quoted

Indonesian ministers are among the most photographed personalities in the newspapers simply because they regularly appear in public events like seminars, workshops, groundbreaking ceremonies, inaugurations, companies' birthdays, hearings with parliament members etc.

I just don't understand what is the benefit for readers to see their faces every day? Don't we have more beautiful sights and sceneries to show how beautiful this country is? Don't we have more dreadful sights and hardships to share with than these same-old faces?
In the last few days, I saw the picture of SOE Minister Sugiharto in various newspapers several times. One newspaper even published two of his photographs. Finance Minister Sri Mulyani is also among the most photographed (not for good looking, I guess). Aburizal Bakrie, the coordinating minister for people's welfare and Energy Minister Purnomo Yusgiantoro are also in the list.
These ministers are also the most quoted officers. We have their statements every day just like the information on stock price movements or rupiah value against US dollar. It's constantly changed, mechanistic, nothing new, just statements, empty words, no meanings, no decisions made. Altogether, we see newspapers increasingly become ministries' newsletters.
Below these ministers, we also see regularly pictures or headshots of SOE CEOs like, among others, Agus Martowardojo (Bank Mandiri), Sigit Pramono (BNI), or Ari Sumarno (Pertamina), while performance of these SOEs are not as good as their photographs.

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Benny Tjokro bought 75 m Cenko shares

Businessman Benny Tjokrosaputro bought 75 million shares of PT Central Korporindo (Cenko) Tbk at the time one of his companies, PT Suba Indah Tbk, defaulted the payments to creditors, especially Bank Mandiri. Cenko is controlled by Tjokrosaputro family.

It's strange that JSX had just published Benny Tjokrosaputro's letter today while he had sent the letter in June 7, 2006, few days after he bought the shares.

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Heard in the street: Suba Indah acquisition

Debt-ridden corn starch producer PT Suba Indah Tbk might have new controlling shareholder. Two groups, Gudang Garam and businessman Teddy P Rahmat (former CEO at Astra International) are reportedly in discussion with Suba Indah owners about a possible takeover.

People close to the groups said the discussion is still in early stage. "It's in the approach stage with Gudang Garam and Teddy Rahmat as potential investors," the businessman said and dismissed speculation of Cargill Inc might interested in acquiring Suba Indah.
But people close to Teddy Rahmat denied the report. "No, we're not looking Suba," he said.
State-owned PT Bank Mandiri Tbk as the biggest creditor at Suba mounts pressure to the company to service its Rp994 billion bad debt (more than US$100 million). Suba reported negative equity of Rp90 billion as of December 2005.
Two weeks ago Suba Indah reported to JSX that the shareholders were willing to pledge some property and mining assets as collateral to restructure Bank Mandiri loans after the bank soften its demand from cash payments.

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Mandiri is under pressure still

Reading Bank Mandiri's financial statement published this morning, some might say the largest bank have cruised the difficult times and may expect higher net profit this year. The bank recorded net profit of Rp510 billion in the first quarter 2006. That's the reason. For the whole financial year 2005, the state-owned bank booked net profit of Rp660 billion, dropped 85% from 2004. But that's just too early. Why?


In fact, Mandiri's Q1 2006 is worse than Q1 2005 in terms of net profit (Rp519 billion). And if we take a look at the bank's core operation, the net interest margin at Rp2.06 trillion is actually lower than Q1 2005 at Rp2.21 trillion. The bank managed to boost other operations income, but failed to reduce operation costs.
The bank's employment expenses is already the highest among Indonesian banks with average cost of Rp150 million per employee, 50% higher than Bank Central Asia (BCA), the most profitable bank, at Rp102 million per employee.
The gross non-performing loan ratio is obviously higher in Q1 2006 at 27.66% against 18.88%, while net NPL ratio increased from 10.9% to 15.84%. It means, a significant progress in trimming NPL is paramount.
What's happened in the last few months? No progress made after the failure deal with Sampoerna Family to settle Kiani Kertas's US$200 million bad debts. The negotiation to improve loan arrangement with Raja Garuda Mas is not started yet. No immediate solution on Great River International. Suba Indah is also in trouble. Argo Pantes have just survived the bankruptcy lawsuit, but long way to go on Mandiri's loans. The question is whether the management of Mandiri has been tough enough to deal with big guys like Kiani, Raja Garuda, Great River and Argo Pantes?

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Argo Pantes still in red

Integrated textile producer PT Argo Pantes Tbk reported net loss of Rp214.14 billion in 2005 to make its accumulated loss of Rp1.45 trillion as of Dec 2005 on poor margin.

According to its audited financial report published today, Argo Pantes booked lower sales at Rp932.53 billion in 2005 against Rp982.37 billion in 2004. The company managed to reduce gross and operating loss to Rp87.24 billion.
In February 2006, Indo Pus BV, a Netherland-based company, and Deutshce Bank filed a bankruptcy suit on Argo Pantes for its default payment of US$12 million. Argo has outstanding debt of US$198.68 million to 18 creditors of which Bank Mandiri is the largest with US$92 million.
Argo have proposed the settlement through debt to equity conversion of which creditors would control 21% shares. But no agreement yet on the proposal submitted two weeks ago.

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Garuda & The Ticket to Nowhere

Transportation Minister Hatta Radjasa disclosed government's plan to ask a debt haircut to the creditors of the-loss-making-flag-carrier Garuda Indonesia. The amount of the haircut would be substantial enough to make sure creditors will not approve that. And even if the creditors would be generous enough, such haircut is just a ticket to nowhere. Why?

To be honest, debt haircut is one of the best solutions to keep Garuda flying. The problem is how much haircut would be given. Minister Radjasa said Garuda's sustainable debt is US$270 million. That would translate to a demand of debt haircut up to US$520 million of its outstanding US$794.6 million. European Credit Agency (ECA) is the biggest creditor at US$501.6 million, followed by floating rate note (FRN) holders of US$130.6 million, a mandatory convertible bond (MCB) of US$136.8 million, and some banks.
In March, SOE Minister Sugiharto told parliament members that government need to inject US$250 million (from the state budget) to refinance Garuda's debt and establish a special purpose vehicle to buyback the debts. So it looks like Soeharto administration's bailout of aircraft manufacturer (IPTN) in 1990s. Billions of US dollar invested in IPTN (renamed Dirgantara Indonesia) only to end up as dishes manufacturer and the state still had to takeover its bad debt at IBRA few years ago.
I'm sure MOF Sri Mulyani, a fiscal conservative, would not give the money to Sugiharto. Even Prime Minister Abdullah Ahmad Badawi rejected to bailout Malaysia's flag carrier Malaysia Airlines.
Sugiharto then opened the new option, divestment of up to 49% shares of Garuda. Several big names in the airline business were tipped as parties that had expressed interest to be government's new partner in Garuda. But resistance quickly emerged, as always, in the name of nationalism. Parliament member Drajad Wibowo (a former economist)rejected the divestment to foreign parties, but it's ok through IPO or to local investors. Hatta, meanwhile, asked his colleague in cabinet to give priority to debt restructuring than the divestment.
Nationalism have prolonged the endgame of many flag carriers, including those in Europe. Europe's airlines long were considered extensions of foreign ministries, responsible for flying the flag, not running a business. During the first half of the 1990s, European governments handed out $9 billion to prop up money-losing carriers from Air France to Greece's Olympic Airways. Even private companies have not escaped political complications. BA's attempt to buy KLM Royal Dutch Airlines collapsed partly because of fear that if the Dutch airline came under British ownership, it would lose international treaty rights to fly to places outside of Europe such as Japan and the U.S. And European Union rules prohibited Swiss-air, based outside of the EU, from taking over Belgium's landing rights within the EU if it bought a controlling stake in Sabena. So Swissair settled on a 49.5% stake.
In that sense, nothing particularly wrong on nationalism over Garuda. But VP Jusuf Kalla actually had more liberal views on flag carriers. In December last year, Kalla was quoted by Tempointeraktif.com saying Garuda is no longer the flag carrier and that he welcome investors to buy the airline.
At the time all these leaders bussy to talk about how to save Garuda, for whatever reasons, Garuda defaulted MCB payment to a bank syndication led by Bank Mandiri as Garuda keep mounting losses. The airline booked net loss of Rp672 billion last year, reduced from net loss of Rp811 billion in 2004. Stiff competition pushed down Garuda's occupancy rate to 67% in 2005 with half million less passengers than the previous year. Garuda's market share has dropped from 70% (prior to the liberalization of airline industry) to the recent 30% (some says 25%). Garuda apparently had failed to cope with the changing environment.
I agree with Lin Che Wei (Danareksa's president director) who wrote in Kompas newspaper few months ago that Garuda need to seriously overhaul its operation, streamlining, downsizing etc.
I believe that people support the basic idea of keep the company alive because thousands of jobs are at stake. But people have different views on how to help the company improve. I prefer the company raise equity, either through capital market or private placement (I have no problem with domestic or foreign investors) than using state funds to inject new loans-to-equity type of bailout simply because it's a kind of return ticket to nowhere! Garuda will return to the same place, parliament and government for help, at the expense of ordinary people who deserved more the state funds for better education or healthcare infrastructures.

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