Andrew Marshall, Jakarta – Indonesia's powerful bank restructuring agency went on the offensive on Tuesday in the battle over control of the country's largest automaker, Astra International, launching a bid to change the firm's management.
The Indonesian Bank Restructuring Agency (IBRA), which holds around 40 percent of Astra, said it wanted an extraordinary meeting on February 8 to consider management changes and review plans for a share issue which would dilute existing holdings.
The announcement was the latest salvo in IBRA's struggle to sell its stake to a group of foreign investors in the face of opposition from Astra management.
"IBRA has worked with the board of directors to achieve a mutually beneficial strategy ... to dispose of its Astra stake in a timely, transparent and value-maximising manner. IBRA may seek to replace directors at the EGM ... to install directors that will help promote corporate transparency and cooperation," it said.
IBRA is Indonesia's most powerful economic entity. It controls some 600 trillion rupiah ($83 billion) in equity and debt and is central to the most fundamental objectives facing Indonesia – rebuilding the banking sector, restructuring the country's massive debt burden and attracting investors.
The agency styles itself as a "one stop shop" for foreign investors – it controls assets in almost every sector of the economy and aims to sell them off over coming years.
So the sale of its Astra stake – one of the jewels in its portfolio – is a test case, closely watched by investors. But so far, things have not been going well.
A test case for Indonesia
IBRA announced last month that a group of investors led by Gilbert Global Equity Partners (GGEP) and Newbridge Capital had been selected as the preferred bidder for its 40 percent stake, and would conduct due diligence on the Indonesian firm.
But negotiations with Astra's management have turned increasingly acrimonious. Astra refused to answer hundreds of detailed questions from GGEP/Newbridge, saying the information requested was sensitive and could be used by competitors.
The investor group accused Astra of withholding information and blocking due diligence, and said Astra's actions could scare off other foreign investors.
The issue of foreign buying of Indonesian assets is a thorny one. Nationalist politicians say foreign firms should not be allowed to scavenge crisis-hit Indonesian assets at low prices, and asset sales should be on hold until recovery begins.
Their critics say there cannot be recovery without foreign investment and the sale of distressed assets, however cheaply.
Nationalist sentiment has already scuppered much of the country's privatisation programme, and was stirred up again by a damaging battle over the sale of Bank Bali.
IBRA's efforts to sell a stake in Bank Bali to British-based Standard Chartered are in tatters – StanChart withdrew from agreements to manage and invest in Bank Bali after finding itself embroiled in an Indonesian political scandal and facing protests by disgruntled Bank Bali staff.
IBRA aggression may backfire
The government this month installed former Telkom president director Cacuk Sudarijanto as new head of IBRA with instructions to speed up asset sales and debt restructuring.
Analysts say IBRA's aggressive stance on Astra is a signal that Cacuk will push ahead with asset sales and deal sternly with recalcitrant companies. But they warn the move may backfire.
In picking a fight with Astra, IBRA has chosen a tough opponent. The company is regarded as one of the best managed in Indonesia, and chief executive Rini Soewandi is liked by the market and politically well-connected.
The market reacted unfavourably to IBRA's move – Astra shares were down 3.8 percent at 3,750 rupiah at 0300 GMT.
Analysts said IBRA was unlikely to succeed in pushing through a major management change, but may get a representative on to the management board.
"While this should facilitate greater access to detailed information...IBRA must also take careful steps so as not to undermine investors' confidence, given that a major change in (management) could cause changes in the company's existing business strategy," said Ferry Yosia Hartoyo, head of research at Vickers Ballas in Jakarta.
Analysts say there is a widespread belief in Indonesia's corporate community that IBRA is being unfair on Astra. Many have criticised the process for selecting the preferred bidders, and the level of information the bidders are demanding from Astra.
If the stake sale collapses, the consequences for Indonesia's economic recovery will be dire. But, analysts say, if IBRA treats Astra unfairly in its determination to speed up asset sales, the company may gain enough ammunition to fight back successfully, hammering another dent into IBRA's tarnished credibility.