Lippo's Auric still in red

Auric Pacific Group Ltd, wholesaler and food retailer controlled by Lippo Group, reported net loss S$3.4 million last year, declined from S$33.8 million loss in 2008. The swing around of $30.4 million was largely attributable to better results in relation to investment related activities.

Auric reported net sales revenue of S$405.96 million last year, declined slightly by 3.3% from 2008, thanks to improvement in the last quarter of 2009. Wholesale and distribution contributed S$235 million of revenues, down 2%, while food retail inched up 5.7% to S$116 million.

Manufacturing and food court, meanwhile, increased 1.7% and 251% respectively. But these segments contributed only S$53.78 million of sales revenue.

Auric Pacific had total asset of S$362.79 million in Dec 31, 2009, declined slightly from S$393 million in Dec 2008. The stock is rarely traded.

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Arbitration Tribunal orders Lippo to pay Astro

Astro All Asia Networks Plc told Malaysian stock exchange last Friday that it had received a further award from the Singapore International Arbitration Center ordered Lippo Group subsidiaries to pay Astro in the amount of Rp6 billion in in relation to the costs incurred at the preliminary hearing in an arbitration proceeding.

Astro brought companies associated with Lippo Group to SIAC over the failure to complete a proposed joint venture in PT Direct Vision. The award, dated February 5, 2010, ordered the respondents, PT Ayunda Prima Mitra (APM), PT First Media (KBLV) Tbk, and PT Direct Vision (DV) to pay Astro RM2.22 million.

"This follows an earlier ruling in May 2009 after a preliminary hearing in April of that year in which Astro and its associated companies received an award from the arbitral tribunal which made it clear by rejecting the challenge to its jurisdiction and confirming that it had jurisdiction to hear and determine any dispute within the scope of the agreements between Astro associates and the Lippo Group," said Todung Mulya Lubis, counsel to Astro in Indonesia, in a statement.

Astro received a further partial award on October 3rd, 2009, in which the arbitral panel confirmed, among others, that there is no continuing binding JV agreement between APM, KBLV, and Astro affiliates and therefore there is no obligation from Astro or their affiliates to provide cash advances and/or the supply of services to PT Direct Vision.

Last week, West Jakarta District Court dismissed the claim brought by SkyVision against Astro All Asia Networks Plc and several others, on the grounds that, amongst others, Skyvision lacks legal standing to bring the action. Skyvision is at liberty to file an appeal within 14 days.

PT MNC Sky Vision filed an objection against AAN and its subsidiary, All-Asia Multimedia Networks FZ-LLC, and several others to the ruling by the KPPU of August 20, 2008.

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Newsroom downsizing

Rumors swirling around that Lippo-controlled publications (The Globe Magazine, The Jakarta Globe newspaper, and Suara Pembaruan) are downsizing their staffs. The Globe magazine and newspaper will merge their newsroom. At least 15 journalists have reportedly laid off. In the meantime, Tempo reported lower advertising revenue for both the magazine and newspaper.

Bigger layoff is reportedly going to happen at Suara Pembaruan evening paper, co-owned by Lippo Group and Edwin Soeryadjaya. About 90 staffs will have to find new job. Investor Group, also controlled by Lippo, will also see some of its marketing staffs laid off.

Print media has been struggling for years now. Financial reports of Tempo and Republika shown substantial decline in revenues from advertisements. The Tempo Magazine, for example, reported advertising revenue of Rp37 billion in nine months of 2009, dropped substantially by 14%. The Koran Tempo newspaper, meanwhile, reported smaller decline of 2% to Rp28.8 billion in the same period.

Income from circulation of magazines and newspaper were not significant enough to cover higher expenses. Tempo Media Group reported higher sales revenue of 9.4% in Jan-Sep 2009 mainly because of sales of non-media print materials (most likely ballot paper for the election cycles last year).

Bottom line? Tempo Media reported net profit of Rp1.66 billion, dropped 26% from the same period last year.

Abdi Bangsa, publisher of Republika and some magazines, reported lower sales revenue of 10% to Rp92.9 billion in 9 months of 2009, mainly because of almost 50% drop in ad + circulation revenues for magazines, while ad + circulation for newspaper increased only by 6.5%. Interestingly, income from Dotcom surged 117% to Rp3.99 billion. But with higher operating expenses, this publisher reported operating loss of Rp0.7 billion, crashed from operating profit of Rp9.7 billion in Jan-Sep 2008. Abdi Bangsa's net profit fell 77% accordingly.

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Matahari offers new Notes

Matahari International BV, a company controlled by giant retainer PT Matahari Putra Prima (MPPA) Tbk, offers an exchange of Existing Senior Notes US$150 million 9.5% due this year with new Senior Notes due 2012.

Matahari told market authorities that it also offers certain incentives to those agreeing to set aside several consents in the existing notes (consent fee offer). But existing notes holder can't concurrently participate in both exchange offer and consent fee offer.

Matahari told market authorities earlier that it had repurchased US$35 million out of the US$150 million Senior Notes.

Matahari is the largest retailer in Indonesia with over US$1 billion sales revenue last year. The company currently has market capitalization of around US$350 million. Matahari reported net profit of Rp36 billion in the first quarter 2009, doubled from the same period last year even though its operating profit actually halved to Rp43.9 billion on higher costs of operation.

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Lippo's energy business

Auric Pacific, Singapore-listed company controlled by Lippo Group, acquired China Energy Limited---the largest dimethyl ether (DME) producer in China---last month through conversion of loans. Five years ago Hong Kong-listed Lippo China Resources Ltd partnered with InterGen & El Paso to build 724 MW power plant in Fujian Province, China. A decade ago, Lippo's name was connected with Mission Energy in Paiton project. And now?

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Debt & equity market highlights

PT Bank Lippo Tbk finally listed the US$200 million bond arranged by UBS in Singapore Stock Exchange. The proceeds would be used to finance the bank's commercial and consumer lending, and strengthen its capital.

Meanwhile, PT Bank Negara Indonesia Tbk had secured US$150 million syndicated loan from 12 banks & financial institutions to refinance debts. ABN Amro, Bano of Tokyo Mitsubishi UFJ, State Bank of India, Burgan Bank- Kuwait, The Arab Investment Company, Bank Muscat, National Bank of Dubai, Shanghai & Commercial Savings Bank, Mizuho & Standard Chartered are members of the syndication.
Pakuwon Jati Finance BV, a wholly-owned subsidiary of property company PT Pakuwon Jati Tbk registered in Amsterdam, Netherland, had issued US$110 million bond (12%, maturity 2011). The bond, listed in Singapore Stock Exchange, would be used to refinance debts and finance the acquisition of PT Artisan Wahyu.

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Industrial Estates controversy

Government's plan to force manufacturers relocate plants to industrial estates has created a controversy. Those who oppose the plan accuse government of giving too much power to the industrial estate developers, while the supporters said the plan would be for the best of manufacturers themselves. What's up?

Government is drafting a regulation on industrial estates scheduled for implementation by 2010. In the next few years, plants should be relocated to industrial estates. If by 2020 these plants still outside the industrial estate, government will impose administrative sanctions such as freezing the extension license, means they can't grow further. Not all plants should abide the regulation. Exceptions applies to petrochemicals, cement, and mining.
Industry minister Fahmi Idris argued industrial estates with good infrastructure would accelerate production as things would be made easier for them to get raw materials and necessary licenses. Government also argued better environmental impact management inside the industrial estates.
As reported by Kompas today, there are 83 industrial estates developed in 24 cities across the country with occupancy rate of 40%. The new regulation would definetely increase the occupancy rate.
Industry players responded the draft regulation with criticism. No way that government could force them to relocate. Should be market driven, they said. Any forced relocation would make the cost at industrial estates jump significantly as people have no choice.

Major industrial estates that might get benefit out of government's plan:
1) Jababeka (listed)
2) Kawasan Industri Gresik (state-owned)
3) Kawasan Industri Sentul (private)
4) Kujang Industrial Estate (state-owned)
5) Krakatau Industrial Estate Cilegon (state-owned)
6) Kota Bukit Indah Industrial City (private)
7) Lippo Cikarang (listed)
8) MM2100 Industrial Estate (private)
9) Surya Cipta Industrial Estate (private)
10) Surabaya Industrial Estate Rungkut (state-owned)
11) Wijaya Kusuma (state-owned)
12) Batamindo Industrial Park (private)
13) Kabil Industrial Estate
14) Cilegon Industrial Estate (Jababeka subsidiary)
15) Medan Industrial Estate (state-owned)
16) Makassar Industrial Estate (state-owned)
17) Kawasan Industri Bontang (state-owned, subsidiary of PT Pupuk Kaltim)
18) East Jakarta Industrial Park (private)

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ASTRO invest another US$140 million in Indonesia

PT Direct Vision, a JV between Malaysia's Astro and Lippo Group, has invested US$140 million since last month to boost its presence in Indonesia's direct-to-home broadcasting market, Antara news agency reported.

In its first six months of operation, Astro managed to get 30,000 customers with target of 150,000 customers by the year end. In the next five years, Astro plans to boost its investment by US$1 billion with ambitious target of up to 2 million customers.

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The Richest Indonesians & The Ironies

What a coincidence! Out there, Dow Jones quoted Forbes Asia's rich list, naming Sukanto Tanoto (owner of Raja Garuda Mas/RGM) as its Indonesia richest. At home, newspapers quoted SOE Minister Sugiharto pledge his support for state bank PT Bank Mandiri Tbk to take legal action toward recalcitrant debtors. Mandiri had named RGM as one of the debtors with no good faith.

While it's difficult to verify the exact figures, Sukanto's wealth according to Forbes reached US$2.8 billion, well above Putera Sampoerna (2.1), Eka Tjipta Widjaja (2), Rahman Halim (1.8) or R. Budi Hartono (1.4) and Aburizal Bakrie (1.2). In the previous list, Forbes named Halim as Indonesia's wealthiest while Sukanto was not even in the top five list. Wondering how the Forbes list has changed so significantly in the last few months.
Detik.com reported Sukanto is still in the police's fugitive list. But I'm not sure whether he is listed there still.
It's true that Sukanto once named a fugitive. His name also linked closely with Unibank which was closed down in 2001 but none held responsible for third party liabilities in the bank. The case isn't closed yet.
Sukanto's wealth mainly derived from palm oil business. He has pulp & paper empire, and recently oil and gas as well.
Surprisingly, no Sjamsul Nursalim in the top 10 list. Riady family, Tommy Winata, and Mum'in Ali Gunawan are out of top 10 as well. Riady family is partnering with Forbes for Indonesian edition, scheduled early next year.
Like it or not, agree or disagree, Forbes list could help Indonesia's tax officers chasing their tax payments or Bank Mandiri's bargaining position on bad loans. The list also useful for politicians, regent, governor candidates, or hopeful president candidates.
If you follow years of Forbes’ rich list, there is no significant change on the names of Indonesian richest. The difference is only on the amount of wealth & the rankings. The wealthy Indonesians could be categorized in several groups based on how they got their fortunes.
First, cigarette groups. We have Sampoerna family (even though they sold out the cigarette business to Phillip Morris), Wonowijoyo (Gudang Garam), Hartono (Djarum), and Peter Sondakh (Bentoel).
Second, forestry & plantation groups. We have Eka Tjipta Wijaya family (Sinar Mas Group), Sukanto Tanoto (Raja Garuda Mas), & Prajogo Pangestu (Barito).
Third, consumer goods. We have Salim and Wings Group.
Fourth, energy & engineering groups. We have Bakrie family, Panigoro (Medco), Kris Wiluan (Citra).
Fifth, property group. In this group we have Tan Kian (Dua Mutiara), Haliman Trihatma (Podomoro), Tommy Winata-Sugianto Kusuma (Artha Graha), Riady Family (Lippo).
Sixth, manufacturing. In this group we have Nursalim (Gajah Tunggal) for example.
So, mainly they got the fortunes from Indonesia’s rich & cheap resources (natural & human).
While most of these groups have expanded overseas (mainly China, India, or Brazil), Indonesian operations are still their main source of wealth. Most of these conglomerates were hurt by financial crisis, with the exception of cigarette groups.
But they have recovered in the last few years, thanks to the generosity of Indonesian people, the taxpayers. The state bailed out their bad debts. Some surrendered assets, but others managed to escape the financial responsibility easily.
Salim Group, for example, surrendered assets in 107 companies to pay around Rp56 trillion (US$6 billion) debt following the turmoil at Bank Central Asia (BCA). Government sold almost all the pledged assets with recovery rate of around 35%. Nursalim also did the same to pay his Rp28 trillion (US$3 billion) debt, with lower recovery rate.
Government also spent almost US$2 billion to bail out Bank International Indonesia (previously owned by Eka Tjipta’s Sinar Mas, currently controlled by Temasek).
That’s why there is almost no significant change in names listed in Forbes, the latest edition and in 1990s. The fact that Sukanto & Eka Tjipta are listed as number one and third in the ranking sparked criticism about how they created the wealth.
Both Sukanto & Eka Tjipta have strong pulp/paper & plantation (mainly crude palm oil) businesses through APRIL (RGM) Holdings & Asia Pulp & Paper (APP) respectively. Both groups have been the subject of continues allegation of environmental groups over massive deforestation in Sumatra Island.
WWF report few months ago said that APRIL and Asia Pulp & Paper (APP), the Indonesian paper producers, are accelerating the deforestation of Sumatra's jungles in spite of a bid to portray themselves as green.
According to the report, APP has been responsible for about 80,000 hectares of natural forest loss every year, equivalent to roughly one-half of the Indonesia province of Riau's annual forest loss since 2002. As of 2005, the company controlled nearly one-fifth, or 520,000 hectares, of the natural forests left on Riau's mainland. All these forests are under threat, as are any additional forests that APP acquires in its quest to fill its wood supply gap and expand pulp production.
WWF didn't publish the same press release on APRIL. But WWF Monitoring Brief June 2006 elaborated the organization's analysis on APRIL's activities.
Jikalahari (Riau NGO alliance) investigators have found evidence that APRIL's mills accepted wood from legally questionable third party source as late as May 2006. WWF admitted in the report that it calls APRIL to stop sourcing timber from this area until completion of the government legal verification process.
One NGO leader wrote cynically in Indonesian media recently that if you want to be rich, do the forestry business in Indonesia like Sukanto & Eka Tjipta. Other names listed in the Forbes report also have been regularly accused of various illegal practices such as fraud on reforestation funds or involvement in drugs & narcotics trading, gambling operation, or fishy deals with government and the military. But none of them convicted or worse various interest groups make huge chunk of money from the allegations on these richest men.

/Named a Suspect/
Apart of environmental concerns, the Forbes report has also been responded by Indonesia’s largest lender (by asset), Bank Mandiri, which happens to be the largest lender to Sukanto’s RGM. The bank has, several times, classified RGM as the debtor without good faith in settlement of almost US$500 million debts. Mandiri demands an increase in debt installment following the huge jump in pulp prices worldwide.
The day Forbes announced the rich-list, Indonesian minister for state-owned enterprises (Mandiri’s shareholder) pledged his support for Mandiri’s plan to take legal action against recalcitrant debtors, especially RGM. RGM denied all the charges arguing it follows the debt restructuring agreed upon few years ago.
A director at Mandiri was quoted by Indonesian newspapers saying, “You may rich, but pay your debts,” responding the list.
But it’s the police who surprised many when it announced the plan to reopen the investigation on Sukanto, not for the alleged environmental crime or his debts at Mandiri, but on a suspected banking crime that almost untouched in five years.
Just days after Forbes published the list, Indonesian police announced that it has resumed the investigation on Sukanto, named a suspect in a banking crime few years ago. Police declared that the case, involving Unibank---a bank initially owned/controlled by Sukanto and his wife Tinah Bingei, has been reopened after five years of almost no significant progress in investigation despite the fact that Sukanto had been named a suspect.
Unibank was closed down in 2001 leaving the state paying all third party liabilities (Rp3.9 trillion, almost US$400 million) with no shareholders held responsible. Sukanto was named a suspect on irregularities of export L/C worth US$230 million.
"Based on a meeting between Police Chief and Attorney General in August 2006, Sukanto's case has to be reopened and his status is still as suspect. The case is being handled by police team for corruption crime (Tipikor)," Paulus Purwoko, chief of public relations division at National Police Headquarter as reported by Indonesian media.
The sudden announcement failed to surprise the media at the time of eroding trust on the country’s campaign to fight corruption. Many raised the question, would the police be serious this time? Why the police reopen the case after so long? Could this be just part of ‘political’ game?
"Whatever the results might be, the reopening of the case has made Sukanto, well-known for his generosity overseas, shivering," a journalist from respected magazine commented the move. So far, police has not confirmed yet on when they would summon Sukanto for investigation.
The fellow journalist mentioned about Singapore-INSEAD's Tanoto Library or Carnegie Mellon's Tanoto Professorship. The owner of Raja Garuda Mas (RGM) also established Tanoto Foundation, which provide scholarships.
It’s not about his donations that make people doubt the investigation, but mainly the power politics in the country’s corrupt-legal system. Police might finalize the investigation, but state prosecutors may drop the case like what’s happened with the recent corruption allegation on Eddie Widiono (state-owned electricity company PLN).
Other intriguing issue is the unavailability of legal cooperation between Indonesia and Singapore. While Sukanto normally come to Indonesia, he stays in Singapore. “The problem, we have no bilateral agreement on this,” sighed the deputy attorney general Basrief Arief, who is also the Chief of Corruptors Hunting Team.
Besides, the five-year time lag since the Unibank’s closure in October 2001 is critical especially when it comes to witnesses. That’s why Attorney General’s Office said they would start the investigation all over again. This is clearly a big test for the country’s tattered image on corruption eradication campaign. Without serious efforts to end bad governance in Indonesian business, we can’t expect a cleaner sheet in the future rich lists.

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Jakarta governor candidates (6): Agum Gumelar

Most of my friends don't believe that Agum Gumelar is the potential winner of Jakarta governor election next year. Yet, Sugeng Sarjadi Syndicate's survey shown the vice president candidate (running mate of Hamzah Haz) in 2004 election as the front runner. Who is he?

Agum Gumelar was born in Tasikmalaya, West Java in December 17, 1945. He spent most of his carreer as military officer, served as the commander of Army's Special Forces (Kopassus) in early 1990s, and retired as three-star general before then president Abdurrahman Wahid appointed the man as minister for transportation. He retained the post during Megawati Soekarnoputri's administration until his resignation to compete against the former boss in 2004 as Hamzah's running mate.
He made controversial decisions as telecommunication minister with 3G licenses awarded to Lippo Telecom (a subsidiary of Lippo Group). Oops, in April, shareholders of PT Lippo Karawaci Tbk, the largest listed property company owned by Lippo Group, appointed Agum as the commissioner.
Agum had registered to run the governorship under Megawati's PDI-P banner. He would compete with civilian figures, Faisal Basri and Sarwono Kusumaatmadja, who also had registered to be PDI-P's candidates.
"If Agum could win the candidacy at PDI-P Jakarta Chapter's conference, he has the chance to win the governorship as he is perceived as a decisive military figure and pro-pluralism," a political analyst-friend said.
Agum is a popular figure thanks to his position as chairman of the National Sport Committee (KONI) despite poor performance of Indonesian sports. A big fan of football, he has been a regular TV commentator for major tournaments like World Cup or Champions League.
Father of two (Khaseli & Ami) from his marriage to Linda Amaliasari (daughter of former Soeharto-era tourism and telecommunication minister Achmad Tahir), Agum earned master degree in science (what science?) from American University (anybody knows the exact location of this university?). Agum is classmate of the current Jakarta governor Sutiyoso at military academy.
His daughter Ami married to badminton champion Taufik Hidayat, the most popular athlete in Indonesia. Smash!

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Indonesia banking consolidation

A decade ago, Indonesia had 240 banks. Financial crisis in 1998 had cut significantly the number to 131 banks at the moment. It was the crisis that forced the consolidation in the country’s banking industry. But with per capita income of below US$1,500, the number is way too big and it cost the country a huge inefficiency of banking operations.

Under Indonesia Banking Architecture (API) launched in 2004, entry to the market has been tightened with minimum capital of Rp3 trillion (US$335 million) to open a new bank. Besides, banks, including the banks established by regional administrations, should have minimum capital of Rp100 billion by 2010.

In June 2005, Bank Indonesia (the central bank) launched the banking consolidation policy to anticipate the implementation of Basel II Accord by 2008. Under the policy, banks should have minimum core capital of Rp100 billion (US$11 million) as of 2010 and a minimum of Rp80 billion by the end of 2007. Those who failed to meet the requirement will be punished with limited operation such as maximum amount of third party funds at 10 times of core capital and maximum loans of Rp500 million (US$550,000).

The central bank actually hoped for voluntary mergers before 2007. But there are only few voluntary mergers and acquisitions so far. Some small-medium banks have tried to raise capital through stock market, but the progress has been slow. The latest major merger was back in December 2004 when three banks (CIC, Danpac & Pikko) merged. Last year, two banks (Arta Graha & Inter Pacfic) merged and Sinar Mas reentered the banking business with the acquisition of small bank PT Bank Shinta. But overall, the consolidation has been too slow.

Currently total capital of 131 banks is Rp120.8 trillion or average of Rp916 billion. It seems bigger than the requirement of Rp100 billion. But the Top 20 banks contributed to most of the capital and leave others with big question mark. There are way too many banks that serve one or two customers only, sometimes related to the owners or related parties/families with core capital less than US$10 million.

According to financial report as of June 2006, the Top 20 banks has combined capital of Rp114 trillion which leaves another 111 banks with combined capital of only Rp6 trillion or average of Rp54 billion. Most foreign-owned banks in the country have core capital above Rp100 billion with Bank of America as the only exception, raising the question of its future in Indonesia.

Profitability is also a big issue in Indonesian banking industry. As of May 2006, total assets in Indonesian banking system is Rp1514 trillion (around US$165 billion) while total profit is Rp15 trillion, reflecting a return on asset (ROA) of 1%. But why these banks don’t want to merge?

Central Bank and bankers argues that banking consolidation needs tax incentives, the authority of government. But no such incentives provided.

Desperate on the bank’s owners to merge voluntarily and the slow progress in banking consolidation through capital requirement, Bank Indonesia then launch the single presence policy, which practically forbid a company or someone owns more than a bank. But the policy most likely would only consolidate big banks, not the small banks. For example, Temasek-related banks (Danamon, BII & DBS Indonesia), Khazanah (Bank Niaga & LippoBank), Panin Group (Panin & Victoria), Standard Chartered (Standard Chartered Indonesia & Bank Permata), or Rabobank (Rabobank Indonesia and two banks it acquired recently—Bank Haga and Hagakita, from Djarum Group which controls Bank Central Asia/BCA) and ANZ-ANZ Panin.

If the central bank fair enough to implement the policy, state-owned banks should be merged or consolidated as well. But in normal situation, it’s difficult to merge state-owned banks. Efforts to merge PT Bank Negara Indonesia (BNI) Tbk and PT Bank Tabungan Negara (BTN) collapsed last year on political maneuvers from the proponents and opponents.

Vice President Jusuf Kalla indirectly opposed the idea to merge state-owned banks arguing they have different functions in the economy. Strong resistance has always been at the state-owned banks themselves, especially workers and the management, something the government can’t just neglect.

This is great dilemma and political test for Indonesian government as neglecting the consolidation based on single presence policy would be discriminative and against the fair competition law.

Confronting such dilemma, Central Bank has softened its stance on single presence policy. Instead of forcing the owners to divest or merge the banks, they’re given option to establish a holding company to manage the banks.

Some banks have responded the move in different ways. Djarum Group, who owns the largest private bank PT Bank Central Asia (BCA) Tbk with Farallon Capital, for example, decided to sell two other banks (Haga & Hagakita) to Rabobank last month. But this had leave Rabobank with further question, whether it will merge its subsidiary with the two banks. Singapore’s OCBC has decided to merge OCBC with NISP.

Singapore’s Temasek is yet to decide the future of its banking ownership in Indonesia (Danamon, BII & DBS Indonesia). Malaysia’s Khazanah has repeatedly denies speculation about merger of its Indonesian banks (Niaga & Lippo). While market has speculated the possible offloading of Niaga and keeping LippoBank, Khazanah has option to merge Niaga & Lippo or establish a new holding. The same would apply to Stanchart or Rabobank.

How about the small local banks?

Some small-medium banks have entered the stock market to raise capital. There are some, which plans to float their shares in the coming months. But most of them are being the targets of acquisition by bigger groups. There are around 20 banks in this category. And we will see more mergers and acquisitions to come.

Further consolidation is subject to Central Bank’s firm decision to implement the architecture it drafted. Under the architecture, there will be three categories of banks operating in Indonesia. First is international bank, those with capital above Rp50 trillion (US$5.6 billion); second, national bank (capital from Rp10 trillion to Rp50 trillion); and focus bank (Rp100 billion to Rp10 trillion). None of the banks operated in Indonesia falls into the first category. A merger of state-owned banks could create one. And only three existing banks are eligible to get the national bank status with nation-wide operation.

Such categorization would consolidate further the banking industry and streamlining the operation of many banks which then boost average assets per customer in most banks and reduce significantly the banking operational costs. We will see more the merger of small-to-medium size banks to get the status as national banks.

Those who will be affected by single policy

Group Indonesian Banks

OCBC OCBC Indonesia
Bank NISP
UOB UOB Indonesia
Bank Buana
Khazanah Niaga
Lippo
Temasek Danamon
BII
DBS
Stanchart Stanchart Indonesia
Permata
Rabobank Rabobank Indonesia
Haga
Hagakita
Panin Panin Bank
ANZ Panin
State-owned banks Mandiri
BRI
BNI
BTN
BEI

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Hasnul in Singapore vs Malaysia

Hasnul Suhaimi has tendered his resignation as CEO at second largest telecommunication company PT Indosat Tbk this morning amid poor performance in first quarter 2006 and the rumor of his sub-standard authority in the company. Everybody speculates of his move to be the new CEO at PT Excelcomindo Tbk, the third largest cellular company, which is left vacant today after the shareholders meeting approved Manuel de Faria's resignation. Is it something to do with latent competition between Malaysia & Singapore at play?

Singapore is obviously the largest international telecommunication player in Indonesia through ST Telemedia's majority shareholding in Indosat, SingTel's 35% shares in Telkomsel (the largest cellular provider), and SingTel's 45% shares in PT Bukaka SingTel Indonesia (the largest fixed line provider in eastern part of Indonesia under a cooperation contract with PT Telkom Tbk).
Meanwhile, Malaysia has two major telecommunication investments through Telekom Malaysia's controlling ownership in Excelcomindo and Maxis Communication's investment at Natrindo (JV with Lippo Group).
Singapore's are clearly bigger than Malaysia's, but the competition is intensified recently. Today, for example, Excelcomindo announced its plan to invest US$500 million this year to broaden coverage and expand customer base. If approved, Hasnul will be Excelcomindo's CEO in three months time.
"I don't think Hasnul decides to move to Excelcomindo because of his knowledge about ST Telemedia's plans at Indosat. Indeed he has a good relationship with Malaysia's politicians and Telekom Malaysia wanted him," said a source close to Hasnul.
How good is he?
"He could complained about the limited authority given by ST Telemedia, but Indosat's performance has been decreased in the last few months," said an executive at Indosat.
Hasnul is tightlipped about his resignation. But Minister for SOEs Sugiharto praised Hasnul's decision to resign at the time of poor result recorded in Q1 2006. Whatever! One thing is clear, Sugiharto is bussy to groom someone to fill Hasnul's position at Indosat. Another friend?

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Govt to offload Permata and BII shares

PT Perusahaan Pengelola Aset, a state-owned company established to manage the assets previously controlled by Indonesia Bank Restructuring Agency (IBRA), would offload the remaining shares in two listed banks, Permata and Bank Internasional Indonesia (BII), Tempointeraktif.com reported yesterday.

Raden Pardede, PPA vice president director, said the company had secured government approval early this month. Govt through PPA holds 26.16% shares in Bank Permata and 5.52% shares in BII. PPA is about to appoint financial advisor for the divestments scheduled in second semester.
PPA also has shares in six other banks, 5.04% of Bank Central Asia (BCA), 10.5% of Danamon, 5.25% of Niaga, 2.64% of Lippo Bank, 28% of BTPN, and 6% at May Bank. PPA plans to divest these shares until 2008.
Government controlled majority shares of these banks through a massive recapitalization program that cost tax payers Rp660 trillion (US$70 billion) during 1998-2001 period. Government started the divestment with BCA to Farallon & Djarum in 2001, followed by Niaga to Commerce Berhad (Malaysia), Danamon and BII to Temasek Holdings (Singapore), Permata to Standard Chartered (UK) and Lippo to Khazanah (Malaysia).

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Lippo Karawaci acquired S$329 million Singapore property

The largest property company listed at Jakarta Stock Exchange PT Lippo Karawaci Tbk acquired a 159,075 ft site in Kim Seng Road, Singapore, at S$329 million, far above its book value at S$59 million.

According to Straits Times (April 11), Lippo bought the site from OCBC Bank. Lippo is also a hot favourite to buy OCBC's shares in retailer Robinson. Lippo Karawaci's market cap by the end of 2005 was US$540 million.

Lippo's competitor in the Robinson deal is PT Mitra Adi Perkasa (MAPI) Tbk, a listed retailer owned by Boyke Gozali and Sjamsul Nursalim.

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Jakarta subway, another 30 years of discussion

It's just ten days away for Indonesia government to decide, whether to accept Japan's offer to finance the long-awaited mass rapid transportation system (MRT) to be built in super-crowded Jakarta. March 31 is the deadline as Japan will start the new fiscal year.
Japan Bank for International Cooperation (JIBC) has repeatedly offer low-interest rate loans, this time 0.4% over 40 years of payment and 10 years of grace period. I would say the offer is lot better than the recently issued US$1 billion global bonds which bears 7.75% interest per annum.
Jakarta Governor Sutiyoso seems want to close his 10-year tenure (next year) with something spectaculer to remember. So he wrote president Susilo Bambang Yudhoyono recently asking government's decision on the MRT project. (This one is probably more important than Sutiyoso's proposal to create a Megapolitan Administration)
He doubted the plan of some state-owned enterprises to takeover the project. "Even we can't build good schools building," he said with cynism.
That's not the first statement of Sutiyoso. I remember back in 2001, Sutiyoso once claimed the construction of MRT project to be started that year at the cost of US$1.75 billion and would absorb 60,000 workers. He should make this happen now.
Three years ago, JBIC agreed to provide US$767.66 million funding for the MRT system at higher interest rate of 0.95%. So, if Sutiyoso was right with the latest offer of 0.4%, this one could significantly cut almost half the interest payments over 30 years time.
I wonder if government could make decision this time. But to my surprise, government rejected Japan's offer on disagreement over terms of the loans (tied loans) and Indonesia's demand to have 75% local content in the project.
Fourteen years ago, when I was a reporter for technology beat, then minister for research and technology BJ Habibie (former president) was the one who heavily supported the country's long-awaited mass rapid transport system. I wrote many articles about the subway system many times only to be upset over and over. Even some of them with exact timetable that the MRT would be in operation by 2000.
I agree 100% with the MRT system, probably due to personal experience with Underground in London, UK or Bay Area Rapid Transport (BART) in Bay Area, San Francisco, USA. That's why I never fed up imagining Jakarta would have such system some day.
But, my goodness, 30 years have passed, we're keep talking about it. That's why Jakartans love to call MRT as a Masih Rapat Terus (Still Under Discussion) project.
Imagine that, the idea was first floated in the 1970s and later during the administration of governor Surjadi Soedirdja, was last postponed after the financial crisis in 1997.
Transportation experts have repeatedly said that the MRT was one of the most effective solutions to tackling chronic traffic congestion in the capital, although they also said it would be extremely expensive.
Other observers say the city's messy underground sewer, power and telecommunications networks, its unstable soil structure and its recurrent flooding problems could turn any underground project into an engineering nightmare. The engineering fears are real given that Jakarta is basically a flood plain but Bangkok has been able to do it.
Imagine the congestion in the capital when the construction starts. But I think people would not mind at all, say for three years, as long as they know exactly MRT could make their life better off.
So what's the problem then?
Well, back in 1994, Habibie signed a memorandum of understanding with two Japanese companies, Sumitomo and Itochu, to build the MRT.
In 1995, when Surjadi was the governor, he signed the MoU with Japan European Group which consisted of PT Citra Lamtorogung (controlled by Siti Hardiyanti Rukmana, former president Soeharto's eldest daughter), PT Bakrie Investindo (controlled by Aburizal Bakrie, currently the coordinating minister for people's welfare),Itochu, and Ferrostaal (Germany).
Other investors worth mentioned are Ciputra Group, Lippo Group, Bukaka Group (partly owned by VP Jusuf Kalla's family) and Suthamtabie (a company owned by the family of Habibie).
I guess, as long as government can't settle the issue of who would be the investors in this project, we should wait few more decades, or even it will never come.
This time, government turned down Japan's offer for funding on local content issue, in which Indonesia government demanded 75% of the value of the project should be provided by local companies. It means that we have to wait 30 more years to really have MRT in place.
Others said intensive lobby from automotive producers may also block the MRT project. But if they book lower car sales in Jakarta, like in the last three months, blame the traffic!

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Single presence to be implemented Q3

Central Bank governor Burhanuddin Abdullah confirmed the implementation of single presence policy in Indonesia to be started in third quarter this year in a bid to consolidate the banking sector, Investor Daily reported today.

Under the new policy, an individual or enterprise is not allowed to be the controlling shareholder or beneficiary owner in two or more banks. With that, some banks should merge if the controlling shareholders decides to maintain ownership or should sell the stakes to other parties.

For example, R. Budi Hartono (owner of Djarum Group, ranked second behind PT Gudang Garam Tbk owner Rahman Halim in Forbes rich list) is listed as controlling shareholder at PT Bank Central Asia (BCA) Tbk, PT Bank Haga, and PT Bank Hagakita. BCA is the largest listed private-owned bank in Indonesia where Farindo (a joint venture between Farallon Capital and Djarum Group) controls 51% shares. It's not clear which option Budi Hartono would take.

Bisnis Indonesia reported that some bank owners have responded the plan with merger plans. "There are some who plan to merge their banks," said Rusli Simanjuntak, director at Bank Indonesia. He didn't disclose the names though.

Some bank owners have previously pledged their support and plan to merge under the single presence policy. Panin Group, for example, is ready to merge PT Pan Indonesia Bank Tbk with PT ANZ Panin Bank. Singapore-based OCBC is also considering the merger of its last year acquired PT Bank NISP Tbk with Bank OCBC Indonesia. Another Singapore-based bank UOB would also merge PT Bank Buana Tbk with PT Bank UOB Indonesia.

Meanwhile Temasek Holdings, the beneficiary owner of three banks in Idonesia---PT Bank Danamon Tbk, PT Bank International Indonesia, and PT Bank DBS Indonesia---is yet to respond the possible merger.

Standard Chartered Bank, the owner of wholly owned subsidiary PT Standard Chartered Bank and 31.55% shares in PT Bank Permata, is similar to Temasek. No respond. Malaysia's Khazanah National Berhad, beneficiary owner of Bank Lippo and Bank Niaga, is also tight-lipped on the issue.

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Richest Indonesians, My List

Below is my list of the richest Indonesian, based on their net worth in Indonesia and other countries:

1) Eka Tjipta Widjaya (major source of wealth: APP, Asia Food & Property, and finance)
2) Rahman Halim (Gudang Garam)
3) R. Budi Hartono (Djarum Group, properties, and 10% shares in BCA---the largest private-owned bank in Indonesia, Bank Hagakita, and Bank Haga)
4) Sukanto Tanoto (RGM International, APRIL)
5) Lim Sioe Liong (First Pacific, Indofood, Bogasari, Unggul Indah Cahaya, properties etc)
6) Sjamsul Nursalim (Gajah Tunggal tire, GT Petrochem, Singapore assets, Jakarta properties)
7) Soeharto & Family (Humpuss, Citra Group, Hanurata etc)
8) Putera Sampoerna
9) Mochtar Riyadi (Lippo properties)
10) Peter Sondakh (cash in hands, Bentoel)
11) Hashim Djoyohadikoesoemo (Khazakhstan and Azerbaijan oil and gas operations)
12) Aburizal Bakrie (Bakrie & Brothers, Bumi Resources, Energi Mega Persada, etc)
13) Paulus Tumewu (Ramayana)
14) Edwin Soeryadjaja (Adaro, MGTI, etc)
15) Sudwikatmono (Indika Group)

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What's weird with Forbes' Indonesia rich list?

We knew from the Forbes that Rahman Halim and family (Gudang Garam) is the richest in Indonesia followed by R Budi Hartono (owner of Djarum Group), Putera Sampoerna, Aburizal Bakrie, Lim Sioe Liong (Salim Group), Eka Tjipta Widjaja (Sinar Mas), and Paulus Tumewu (Ramayana Group).
1) Rahman Halim = US$2.3 billion
2) Budi Hartono = US$2.2 billion
3) Sampoerna = US$1 billion
4) Aburizal Bakrie = US$735 million
5) Lim Sioe Liong = US$655 million
6) Eka Tjipta Widjaja = US$515 million
7) Paulus Tumewu = US$500 million

Is it true that Bakrie is wealthier than Lim or Eka? Eka's net worth in 1999 Forbes list was at US$2.5 billion. It's true that the company struggled with the crisis at Bank International Indonesia (BII) in 2001 and the huge bonds at Asia Pulp & Paper. But the company survived and aggresively expand its business in the last four years.
Could it be possible that Tumewu or Bakrie are richer than Sukanto Tanoto who has US$7 billion investment in Brazil and China?
"No way that Bakrie could match Sukanto. I would say Eka Tjipta is the richest for Indonesia," said one investment banker in Singapore.
Where is Hashim Djoyohadikoesoemo with his US$2.5 billion worth of oil and gas assets in Khazakhstan & Azerbaijan?
How about Mochtar Riyadi family with their Lippo Group? How about Peter Sondakh who got US$800 million in cash from the divestment of Excelcomindo to Telekom Malaysia?
How about Soeharto? Where is Soeharto family's money which Time magazine estimated at US$15 billion eight years ago? The Soehartos' net worth was put by Forbes at $1.7 billion in 1999 and $4 billion in 1998. I just can't believe the family's wealth had dropped to below US$500 million.
What about Sjamsul Nursalim?
While he once had US$3 billion debts to government and pledged some key assets like Gajah Tunggal (the largest tire manufacturer), GT Petrochem (petrochemical company), and Dipasena (the largest shrimp farm in Asia), I believe that Sjamsul regained control over two of these companies, not to mention other assets in Indonesia and Singapore.
So many questions I can't answer myself. But I tend to believe that the Forbes list could help some of Indonesian richests who still owe the state or those who bought back their pledged assets to keep away from tax officers or those who want to squeeze their money for various reasons.
Last year tax officers questioned Paulus Tumewu over his personal income tax. Tax officers claimed Tumewu had cost the state losses of Rp355 billion (US$40 million). But no further investigation since September 2005 as Tumewu left the country to Singapore for 'medical treatment'.

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Opposition to Astro Network heats up

State minister for communication and information Sofyan Djalil has the bussiest days in office in the last few months dealing with public pressures. First on the massive protest on the plan to publish Indonesian edition of Playboy. And then the implementation of new regulations on airwaves and broadcasting which are considered threatening the press freedom.
In the last few days, the ministry have to deal with the pressure to close down the broadcasting license of Global TV, a network previously owned by an Islamic organization for educational purpose but later on sold to PT Bimantara Citra Tbk with completely different programs, mainly entertainments.
Almost at the same time, pressure mounts on direct to home (DTH) service of Astro All Asia Network Plc subsidiary. Today, deputy coordinator for working group on information and communication at The House (DPR) Commission I Dedy Djamaluddin Malik urge government to put on hold Astro's services until the company abide the Broadcasting Law and the regulation on communication satellite.
DPR is scheduled to summon the minister for communication, Astro management, and former director general for post and telecommunication Djamhari Sirat.
DPR believes there are two pending issues that should be settled before the Malaysian giant start to deliver services to Indonesian customers.
First on the regulation foreign ownership in broadcasting which set the limits of maximum 20% foreign shares. Astro All Asia Networks Plc and Lippo Group of Indonesia entered into a joint venture company to provide multi-channel satellite pay-TV and multimedia services in Indonesia in March 2005.
The joint-venture company, PT Astro Nusantara, have an initial paid-up capital of US$30 million, of which ASTRO hold an effective 51% share with the balance held by PT Broadband Multimedia Tbk of the Lippo Group. ASTRO also provides shareholder loans of US$35 million repayable on the third and fourth anniversary of the loan drawdown.
Peak funding is estimated at US$200 million after four years of operations and the additional funding of US$135 milion is expected to be raised through a combination of third party loans, and equity and quasi-equity instruments.
"Astro holds 51% in Direct Vision. This is a violation to the Broadcasting Law No. 32/2002," Malik said.
ASTRO listed on Bursa Malaysia in October 2003. Major shareholders of the Group include the Usaha Tegas Group (42.7%) and Khazanah Nasional Berhad (21.6%), the investment arm of the Malaysian Government.
Second, the issue of landing rights. Parliament believes Astro violates the regulation on landing rights as no reciprocal agrement between Malaysia and Indonesia on satellite communication services.
Whatever the verdict will be, Indonesia as the most populous country in South East Asia clearly a potential market. With only 1% of its population subscribes pay TV services, Indonesia indeed one of the most attractive market for companies like Astro.

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Lippo Karawaci appoints UBS for US$300 million bond sale

Property giant PT Lippo Karawaci Tbk has appointed UBS as selling agent for US dollar bond of around US$300 million, an investment banker told me last night.
The company's shareholders meeting on January 30, 2006 approved the issuance of debt instruments in the form of notes or other forms of US$200 million the most or any other value deemed fair by the board of directors.
Corporate guarantee is applied for the issuance of such debt instruments pursuant to the company's restructuring. Under the restructuring, Lippo Karawaci transfers several assets such as Graha Medika Hospital to PT Graha Indah Pratama, Siloam Gleneagles Karawaci to PT Sentra Dinamika Perkasa, Siloam Surabaya to PT Tata Prima Indah, and Imperial Aryaduta Hotels & Country Club to PT Karya Sentra Sejahtera.
Lippo Karawaci then transfers the shares in these companies by PT Sentra Dwimandiri and PT Prudential Development to a subsidiary established overseas and subsequently change the status of these companies into foreign investment companies (PMA). Lippo also transfers its indirect ownership over these companies to unaffiliated investors.
This is the second restructuring at Lippo Karawaci in less than two years. In July 2004, Lippo Karawaci completed the merger of eight property-related companies to form the largest listed property company in Indonesia by market capitalization. The eight participating companies in the merger were:
1. PT Lippo Karawaci Tbk2.
2. PT Lippo Land Development Tbk

3. PT Siloam Healthcare Tbk
4. PT Aryaduta Hotel Tbk
5. PT Metropolitan Tatanugraha
6. PT Ananggadipa Berkat Mulia
7. PT Sumber Waluyo
8. PT Kartika Abadi Sejahtera

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