By staff reporters Yun Ning and Cao Zhen

Bank of China (BOC, SHSE: 601988; HKSE: 3988), one of the big four state-owned commercial banks, was short-listed March 12 by Temasek Holdings, an investment arm of the Singapore Government, to bid for a 55.85 percent stake in Bank International Indonesia (BII). Other suitors selected by Temasek include HSBC, Australia and New Zealand Banking Group and Malayan Banking.

Temasek, which owns a 69 percent stake in Indonesia’s number five bank Bank Danamon, is selling its BII stake in order to comply with the Indonesian central bank’s “one-presence” rule that forbids foreign investors from holding a majority stake in more than one Indonesian bank. To comply with the policy, Temasek has to either form a holding company that controls both local banks or sell its majority stake in one of the banks by 2010.

The stock price of BII has risen to a record high of 385 Rps or US＄ 0.04 on the announcement of the stake sale. At that share price, the 55.85 percent stake is valued approximately US＄ 1.1 billion, and a veteran investment banker said the final price might include a 30 to 40 percent premium.

Many investors are eyeing the Indonesian market, the largest economy in Southeast Asia with a population of 240 million and abundant natural resources, and BII, the sixth largest bank in Indonesia with more than 230 branches, provides a good platform for those hoping for a piece of the Indonesian banking sector.

BOC, ranked in top three in the world by market value, seems to have the deepest pocket, although some analysts said the Indonesian authorities might lean toward HSBC. The growing trade between China and Indonesia also bodes well for BOC’s potential acquisition, people familiar with the Chinese banking sector said.

BOC President Li Lihui said BOC’s overseas strategy involves mainly targeting the Asia-Pacific and U.S. markets and Chinese companies and high net-worth individuals in those markets.

BOC’s recent overseas transactions include the acquisition of Singapore Aircraft Leasing Enterprise in 2006 for a cash payment of US＄ 965 million and the investment in Bank of East Asia in 2007. Last year, BOC opened branches in Korea, Indonesia, Vietnam, Canada, Brazil, Russia, U.K., and the Netherlands, spending over a billion dollars, and launched a subsidiary in the U.K. in addition to the existing branches there, signaling its ambition to further penetrate the European market.

However, experts warn that Chinese banks, taking advantage of the current high stock prices in the rush for overseas bids, should act cautiously.

They say the fragmented Indonesian banking sector will present a number of challenges for BOC. Others argue that BOC should focus on developing its domestic businesses rather than setting its sights overseas.

The record of BOC’s overseas operations so far has been less than impressive. A source familiar with BOC’s business operations told Caijing that most of the overseas branches have difficulty attracting local clients, let alone the Chinese companies that, more often than not, seek services of other banks.

The source noted that Chinese banks should first pay more efforts on building their own advantages and becoming competitive in the existing overseas operations before making further acquisitions.

Although seen as less aggressive than its home rivals eager to expand globally, BOC in fact has the largest international presence. It opened its first overseas branch more than 90 years ago and currently has 669 overseas branches in 28 countries worldwide. According to Zhang Yanling, Vice President of BOC, the overseas operations now make up 40 percent of the group’s net profit.