11 Aug, 2008
Some argue more is at stake than the RM480 million deposit that Maybank could lose should the deal not be completed by end-September. Bank Negara's approvals in future deals might be viewed more sceptically, they contend.
Business Times
Bank Negara Malaysia’s revocation of an earlier approval for Malayan Banking to buy over Bank Internasional Indonesia is quite unprecedented.
Then again, the Maybank-BII deal is unusual in that Bank Negara is justifying its actions based on the sudden policy changes by another country’s financial markets regulator which it deems to be potentially damaging to Malaysia’s biggest financial group.
Adding to the messy picture is the nationality of the main vendor: Fullerton Financial Holdings, a Singaporean financial group.
The impasse in the deal follows the central bank pullback of its approval on grounds that Indonesia's takeover policy change — which makes it mandatory that 20 per cent of a takeover target be disposed to the public within two years of a takeover — could be potentially detrimental to Maybank.
Given that global economies and capital markets are expected to find the going tough over the next year or two, Maybank might be hard-pressed to dispose of BII shares at 510 rupiah (about 20 sen) per share — the price it paid. That, together with impairment charges, could lead the Malaysian bank to suffer losses of some RM3.5 billion, according to some estimates.
Although Indonesia's capital market regulator Bapepam initially indicated that it was not amenable to exempting Maybank from the new policy, it recently hinted at some flexibility in applying its new takeover rules — by perhaps extending the timeframe to between 3-5 years. That's the closest indication yet that a solution to the impasse could be in sight.
Some argue more is at stake than the RM480 million deposit that Maybank could lose should the deal not be completed by end-September. Bank Negara's approvals in future deals might be viewed more sceptically, they contend.
When Maybank first announced that Bank Negara had withdrawn its consent — incidentally, it omitted any mention that the RM480 million deposit could be forfeited until it was asked at an analysts' briefing via telephone — there were pointed comments that the central bank had come to its rescue as the total acquisition of BII at RM8.6 billion or 4.7 times book was seen as too pricey.
Malaysia's central bank stance assumed the worst-case scenario, analysts observed. Or, as Bapepam chairman Fuad Rahmany remarked, there was “pessimism over the Indonesian stock market prospects”.
But Bapepam's policy change arguably changed the whole complexion of the deal and necessitated Bank Negara's intervention.
Critics of the deal such as the Malaysian Shareholder Watchdog Group put the blame on Maybank's board of directors for the potential loss of the RM480 million deposit, and for over-paying for BII in an attempt to make up for its late start in the regional game.
Although Maybank could prove its critics wrong and deliver on BII sooner than expected, what is perhaps more surprising is the apparent lack of preparedness or contingency clauses in the agreement for policy changes which could affect the transaction.
Indonesia, unfortunately, does suffer from a perception that its policies are sometimes apt to change without warning.
Indeed, this question was asked when the deal was first announced: whether future Indonesian policies could be detrimental to foreign investors? Maybank replied: “There is no reason to suspect there will be any policy changes in Indonesia.”
Now that the changes have come about three months after the agreement was signed — and applied retrospectively — Maybank has been left scrambling to contain the damage.
At this point, Bapepam's softening of its stance and hinting of greater flexibility is encouraging in that it demonstrates that it is prepared to listen to investors and be reasonable in applying new rules and policies. How both authorities cooperate and handle this transaction could either complicate or strengthen relations — but should boost the development of their capital markets.
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