9NOVEMBER 2024Banks and municipal banks (BPD), the majority of Indonesian private banks are owned by multinational investors as majority or controlling shareholders. The most important thing to look for in a controlling shareholder is its ability to fully support the bank's stability in capital requirement, liquidity, and business expansion in the long term. Therefore, banks must include corporate action for capital rising in their business plan. Capital raising from the new strategic investor will require a DD process. It is a comprehensive process which sometimes painful (additional work for the internal team and of course, additional costs for the bank) but mandatory to gain a strong and dependent investor. The common sequences of corporate action, including DD in banks, are as follows:· Initial meetings (bilateral meetings or accommodated by a financial advisor).· Submission of letter of intent (LoI) from the potential investor.· Initial reports to regulators (banking supervisory and capital market supervisory) to ensure the proposed corporate action will be supported by the relevant authorities.· The targeted company (investee) assigns an internal task force team (often titled the Corporate Action Team), which usually consists of competent representatives from the relevant units: corporate secretary/corporate affairs, corporate legal, corporate/strategic planning, compliance, finance/accounting & tax, business developments, human resources/human capital, operations/distribution channels, digital & IT, etc. The team will report to the Steering Committee, which usually lead by the chief finance officer or finance director.· Follow-up meetings and signing of a memorandum of understanding (MoU) and confidentiality agreement (Non-Disclosure Agreement/NDA) also included the compromised project timeline.· Deposit of fresh funds from the investor into an escrow account (at the targeted company or third party) as the commitment of the M&A process.· Kick-off meeting with all related parties: potential investor, the investee, and the appointed professionals (legal counsels, financial advisors, financial auditors, public notary).· Commence the DD process in several streams: finance & tax, business & strategies, operation & IT, legal & compliance, human capital & industrial relations, treasury & trade financing, etc. The reports are submitted in hierarchy: daily status-weekly cadence meetings ­ monthly reports, and so on. · Management meetings are usually proposed to discuss major progress and issues which need clarification from the management.· The pre-settlement meeting to compromise on the terms of the agreement for capital injection, which both parties, along with every legal counsel, usually followed by a shareholders' agreement. · Submission of capital injection documents to the relevant regulator commonly takes process within two to three months (with several additional documents and inquiries submitted) until the registration documents receive effective approval from the regulator.· Settlement process for the capital injection and post-settlement reports (including information disclosure for the public) as regulated. · Post M&A process: transition of the new management or team to several positions, which is normal circumstances post changes in ownership, engagement of both current incumbents and the newly added teams, changes in the company's culture, with the spirit to improve the company's performance sustainably. Sometimes, the DD process will be cut off in the middle. Most likely because the investor's side has resumed its decision based on the ongoing DD, and they want to avoid losing more money (since the counsels are not cheap) and waste more time when the result is obvious. Sometimes, the completed DD process also did not ensure the investor decided on a positive confirmation for settlement. If this is the case, what should we do as a bank who needs a new investor? When the condition is critical, the regulator will push the current controlling shareholder to be responsible and add capital as it is beneficial to keep the status of the bank. Failing to do so might compromise the controlling shareholder status and could lead to sanctions from the regulator. For the bank, to lose a potential investor is a red flag for the management. It is critical to do overall transformation with speed, knowing that the future of the company is in jeopardy. Therefore, the management must act swiftly to turn around the unfortunate outcome into a fruitful one by implementing an immediate and wholesome transformation in the company. DD has shown the aspects that need improvement, and next, the management needs to turn the plan into action. Hiring a consultant will be expensive. Therefore doing an internal-driven transformation will be more effective for the bank, and it needs all levels and all units to participate. Utilize the result of DD for the company to enhance its strength, change its bad habits and constantly pursue improvement, which will lead to better numbers. And doing so will increase the company's value and attract more reputable investors in the future. Utilize the result of DD for the company to enhance its strength, change its bad habits and constantly pursue improvement, which will lead to better numbers
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