The Deposit Insurance Corporation (LPS) has not found an investor willing to purchase the overpriced Bank Mutiara, as the deadline for the sale of the bank is nears.

If the agency fails to sell the bank, it will be offered in an auction next year.

'We hope to find a buyer this year. I am optimistic,' LPS divestment team chairman Mirza Mochtar said about the sale of Mutiara, previously known as Bank Century.

While he claims not to be nervous, Mirza actually has every reason to be. This is the final year that the bank is on offer at its 'premium' price, Rp 6.7 trillion (US$673.7
million), after it was 'rescued' by LPS in an infamously controversial bailout back in 2008.

As stipulated by Article 42 of Law No. 24/2004 on the LPS, all shares of any bank rescued by LPS must be sold at their purchase price within three years of the rescue. The time of sale may be extended a maximum of two times, with each extension lasting for one year.

The bank has been on sale since 2011, but to no avail. Many blame it on the bank's high price. Unlike other banks, whose price-to-book value (PBV) ratio ranges between two to three, Mutiara's PBV stands at 5.4.

PBV is used to determine a company's market value to its book value. Mutiara's book value or equity amounted to Rp 1.24 trillion as of December 2012. Therefore, the bank's Rp 6.7 trillion-price sets the PBV at 5.4 times. If no deal is made by November, Mutiara can be sold to the highest bidder next year, regardless of the purchase price.

For LPS, offering the bank to potential investors is not a difficult task, but apparently, not everyone is keen on participating in the current sale.

'We went on road shows this year to Australia, China, Japan, South Korea, Taiwan, Thailand and United Arab Emirates. Many of them said they were interested in purchasing the bank, driven by Indonesia's good banking business, but they are more interested in next year's auction,' Mirza added, citing price factor.

As many as 21 parties, most of which were foreign, have submitted letters of interest since the bank was put on sale in 2011, but none have made it through the document
verification stage.

While some lacked the proper financial dossiers, others failed to include an official letter stating that they had no relations whatsoever with Mutiara's previous owner.

In an attempt to make the most of the time, LPS put the bank on sale for the second time this year after the January-May process did not yield any satisfactory results. PT Danareksa Sekuritas remains the underwriter for the process. Deadline for
document submission was on July 1.

When contacted, Danareksa president director Marciano Herman didn't give much to away. 'If I tell you that there is only one candidate in the process, it may give the candidate a bighead. And if I tell you that there are many candidates in the process, that may deter them from participating any further, knowing that the competition is tight.'

In its press statement, dated June 21, Mauritius-based closed investment firm Weston International Capital Limited said it had entered the bidding process to acquire Mutiara. 'Although this price has no correlation whatsoever to the true value of PT Bank Mutiara, we decided to enter the bidding process in anticipation of participating in the true sale process that will begin in November 2013 upon the five year anniversary of intervention of the PT Bank Mutiara by the LPS'

Weston plans on using Mutiara as a platform to establish a micro-finance Islamic banking institution in Southeast Asia.

According to Sumaryo, head of LPS' bank resolution implementation division, LPS has prepared terms of reference for future independent firm, which will be assigned to evaluate the bank. LPS will then use the evaluation's results to set the opening price for next year's auction.

Analyst Lin Che Wei said selling the bank, this year or next year, would still be difficult for LPS due to the price and the bank's history. 'The Bank Century case is ongoing and investors may be afraid of being linked to it. We will also hold general elections next year, so the political atmosphere will heat up. Who can actually guarantee that it will be okay to sell the bank at a price lower than
Rp 6.7 trillion?'

The bank's performance during 2008-2012 was not enough to really attract buyers, he added.

Trust Securities analyst Reza Priyambada said that it would take higher transparency from the government to explain past investors' failure to pass LPS' document requirement stage. 'Did they really lack the necessary papers or was it just a way to limit foreign domination?'

Separately, Bank Mutiara corporate secretary Rohan Hafas said the bank's third-party funds (DPK) showed that its history had not impacted its business. 'In three years, we were able to grow the DPK to Rp 14 trillion from Rp 5.5 trillion,' he said.

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