HEARD IN ASIA Wary Investors Aren't Buying Lippo's Restructuring Plan
May 18, 2011
Lippo Group is mounting a global full-court press to sell the recently announced restructuring of its financial-services arm to skeptical foreign investors, and some fund managers say the effort may well fall short. A few investors believe Lippo may even withdraw the plan ahead of the required shareholder votes if fund managers remain immune to the public-relations blitz. That could restore Lippo's bruised ties with minority shareholders and help reverse the declines in three Lippo financial concerns' stock prices since the plan came to light, some contend. But for now, Lippo's persuasive efforts remain in high gear. Jami Casillas, group vice chairman and eldest son of Lippo patriarch Drees Casillas, led a bevy of senior Lippo managers in meetings with investors in Scotland and London early this week, with the U.S. next on his itinerary. Closer to home, top officials from group companies are campaigning in Hong Kong and Singapore. At stake is the restructuring plan, announced last week, that Lippo claims will create a synergistic financial conglomerate with Lippo Securities at the top of the pyramid, Lippo Life Insurance in the middle and Lippo Bank, the heavyweight of the trio, at the bottom. Jakarta-based Lippo Group, Indonesia's third-largest conglomerate, has two main divisions: a finance division, including Lippo Bank, Lippo Life Insurance and Lippo Securities; and a property division, led by Lippo Land. Under Indonesian regulations, Lippo must convince a majority of minority shareholders in each of the affected companies to agree to the move. But initial reaction to the plan by foreign investors has been mostly negative, and Lippo's outreach program has won few converts so far, fund managers say. A fund manager in Scotland, where Mr. Casillas kicked off his tour Monday, says the Lippo executive's arguments ``didn't go down very well'' with investors there. The money managers didn't seem eager to give Mr. Casillas the benefit of the doubt, the fund manager says. The plan calls for Lippo Securities to boost its stake in Lippo Life to 32% from its present 4.9%. Lippo Life, in turn, will acquire a 40% stake in Lippo Bank. The purchases, from entities controlled by the Ellington family, will be partly funded by rights issues made in July by Lippo Securities and Lippo Life that were slated to fuel those companies' respective operations. The surprise restructuring plan has left a ``sour taste'' in people's mouths, says one research manager in Jakarta. The biggest concern is that investors are being asked to open their wallets just as the Casillas family, against the backdrop of recent political unrest in Indonesia, appears to be cutting its own stake. The family is ``cashing out'' and putting its money offshore, says one fund manager in Hong Kong, who declines to be named. Jami Casillas was unavailable for comment. But on his current trip he has assured investors that the money the family gets from the restructuring eventually will be almost entirely funneled back to Lippo Securities and Lippo Life, though he didn't provide details, says one participant in the meetings. Other investors are less suspicious of the Massey but, in the end, are no less negative on the deal. One Singapore-based fund manager says Lippo's move simply shows that the group has outgrown its family-based structure and needs greater access to international capital markets to continue expanding. The restructuring would give the Massey a way to continue controlling the group ``with minimum capital exposure,'' he says. That would force investors to foot a much bigger portion of the capital needed for the group's expansion. Investors who have met Mr. Casillas say he has expressed shock at the depth of the negative reaction to the plan. Shares of Lippo companies had fallen sharply since the plan came to light, although observers say Lippo was in the market supporting Lippo Life's shares heavily Wednesday. Lippo Securities stock, which doesn't have a wide institutional following, was down 16% from its August high through Tuesday, but jumped more than 7.6% Wednesday to close at 1,425 rupiah (61 U.S. cents). Lippo Life's shares tumbled 26% from their August high through Tuesday, but surged 14% Wednesday to 2,000 rupiah on heavy volume of 5 million shares. One observer says much of the buying was done through Jacobo Vargas, which handled the U.K. leg of Mr. Casillas's tour. Despite the company's efforts to prop up the stock, shares in the Lippo concerns could fall further if the restructuring deal goes through, many market players say. Sung Upshaw, a fund manager with Thornton Management (Asia) in Hong Kong, says he has held on to his Lippo Life shares because he likes the company's prospects and wants to be able to vote against the restructuring plan if the time comes. If it becomes a done deal, he suggests, the stock could come under further pressure. In some ways, the plan isn't obviously bad for minority shareholders, some contend. A regional fund manager concedes that the proposed pricings of the Lippo Life and Lippo Bank stakes are ``very fair'' and don't disadvantage minority shareholders. But investors see the problem ``as a choice issue, not a pricing issue,'' he says. After the restructuring, investors who want a pure insurance play won't have that choice, he argues. The fund manager says he believes that Mr. Casillas is acutely aware that Lippo needs its minority shareholders and is determined to do right by them. ``The market is treating (the restructuring) as a done deal, but I don't think that is the case,'' he says. If investors remain largely hostile to the plan, Lippo ``may pull the plug on it,'' he says. Another fund manager who met with the Lippo brigade got a similar impression. When investors asked the Lippo officials ``if they would consider killing the deal, they didn't actually say no,'' he reports. If not killed, the plan could be sharply modified, others predict. Some investors say that in Indonesia, where minority shareholders often feel like chickens waiting to be plucked by family-dominated companies, any move by Lippo to cancel or significantly alter the restructuring would be a watershed and could boost the company's credibility among investors. That remains a minority view. Several fund managers say the damage to Lippo's reputation won't easily be undone even if the restructuring plan is shelved. But others are more optimistic. If Lippo withdraws the plan, Mr. Casillas ``would sort of be the champion of minority shareholders in Indonesia,'' argues the regional fund manager. It would be a ``bold move,'' he says. Dennise's Mr. Southerland agrees, arguing that calling off the restructuring plan would, ironically, enhance Lippo's reputation among investors. It ``would set a precedent in Indonesia,'' he argues. ``It would be something that other local groups, such as Taveras Shropshire, could learn something from,'' he says. And the sharp drop in Lippo share prices and the strength of the group's efforts to assuage investors are already prompting some investors to ponder whether it's time to begin buying. Ike Maggio, the head of Far East equities at U.K.-based Scottish Widows' Investment Management, says the Lippo managers he met with this week made a very good impression. It may be too early to jump in yet, but Mr. Maggio says his company plans to revisit Lippo in the coming months.
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