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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

WILLING SELLER, HAPPY BUYER

Astra's sale of AMT draws a map for dealmakers

By Alejandro Reyes


Activism Pushing a "People's Economy"

Adi Sasono On empowering the masses

Winners The top pribumi companies

Tycoon Bakrie says the poor must benefit, too

Politics Factionalism is ripping Indonesia apart

WHEN THE GOING GETS tough, the deals get going. That's what happened in Jakarta when Indonesian conglomerate Astra International sold an integrated circuit assembly and test subsidiary to U.S.-owned investment fund Newbridge Capital. As representatives of the buyer and seller huddled inside rooms at the Grand Hyatt Hotel to complete the $90-million transaction, students demonstrated on the street outside against the government. "Anything that could have happened in the course of this deal happened," recalls Bob Chung, a member of the mergers & acquisition team from CIBC World Markets that advised Astra. "After midnight, we needed to get a legal opinion from the BVI [British Virgin Islands], but just at that time there was a power blackout there. It was absolutely bizarre!" At 5 a.m. on Dec. 3, following 20 hours of talks, the purchase of Astra Microtronics Technology (AMT) successfully closed.

It was a fitting end to an arduous story. Back in May, when rioting in Jakarta led to the fall of then-president Suharto, some Newbridge team members had to hole up in the Grand Hyatt for days. "Political tension was almost a constant theme throughout the negotiation," says Chung. "There was a lot of nervousness on the U.S. side." The turmoil was only one of the concerns worrying Newbridge, a direct-investment firm with over $8 billion under management. So were oversupply in the semiconductor industry, where chip prices are plunging, and the economic devastation wrought by the Asian Crisis.

On the other side of the table, Astra was at first loath to let AMT go, given that the semiconductor maker is a healthy dollar earner. Its revenues have risen 30% annually for the last three years and are expected to do so again this year. Located in Batam, near Singapore, AMT is isolated from the troubles centered in Java. But Astra, Indonesia's biggest assembler of automobiles, had its back to the wall. In October, it told foreign creditors that it would stop paying interest on about $1.4 billion in loans pending approval of a plan to restructure $2 billion of overseas debt. Last month, it proposed a program involving debt repurchases and repayments starting two years after the restructuring plan is implemented. The AMT deal is one of Astra's first sales since the Crisis broke last year and is part of a drive to sell off non-core assets to relieve its debt burden.

CIBC first talked with Astra about AMT in October 1997. The core members of the Singapore-based M&A team were well suited to make their pitch. Chin Foo Chun, managing director of the Canadian investment bank's global multimedia and technology group, had spent almost 10 years in the telecom industry before becoming a banker. Chung had a decade of experience brokering cross-border M&A deals. And Eri Reksoprodjo, CIBC's executive director for Indonesia, had worked for Astra before. Reksoprodjo's contacts were a key factor in helping CIBC convince Astra to sell AMT. An engagement letter was signed in February this year. The first contacts with Newbridge were made the following month, and a purchase agreement was signed in September.

The deal was applauded by the government. "Not only is it an excellent way of improving debt repayment capacity, it will also facilitate ongoing debt restructuring," says Radius Prawiro, head of the Indonesian Private Debt Settlement Team. "It's time now for Indonesian companies to review business plans and focus on core competencies." Chin reckons that the AMT transaction - one of the largest M&A deals in Indonesia this year - shows that Indonesian companies are just beginning to bite the bullet and approach the sale of non-core assets realistically. Much of the negotiations entailed bridging the wide gap between Astra's asking price and what Newbridge was prepared to pay. As talks proceeded and Indonesia's problems deepened, the two sides edged closer. Astra compromised on its valuation of AMT and Newbridge hung on despite the turmoil, until both sides agreed on a fair price.

Are more deals in the offing? "On the technology side, there are probably not that many opportunities, but in the natural resources sector, there will be many more," Chin predicts. One hurdle is getting Crisis-hit sellers to accept that their assets are no longer worth the prices of a year or two ago. "If you're a buyer, then [you think] it's a fire sale," says Chung. "But a deal won't get done unless the seller puts something on the table that approximates fair value." Pricing is not the only problem in Indonesia, and in other Asian economies. "The larger issue is the legal and regulatory environment," says Chung. "There were times when the law says this, but the rules aren't followed or there are unwritten policies. And a solid bankruptcy law needs to be put into place and adhered to before a lot of transactions, particularly restructuring deals, can take place." These days, no deal comes easy.


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