April 10, 2000
International -- Asian Business: Indonesia

Astra: Ready, Set...Sell!

Unloading the Indonesian giant may spur sales of other troubled state assets

The Indonesian government's long attempt to sell assets seized from Suharto cronies was, until recently, a tale of tragicomic bumbling. Despite its desperate need for revenue to replenish public coffers drained by bank bailouts, Jakarta held on to billions' worth of assets confiscated from corporate deadbeats for two years. Seemingly done deals, such as last year's plan to sell seized Bank Bali to London's Standard Chartered Bank, collapsed after auditors found $80 million missing from its books.

Now, finally, the spell has been broken. On Mar. 24, the Indonesian government sold a controlling stake of nearly 40% in auto maker Astra International to a consortium of Asian investors for $506 million cash--in precious U.S. dollars. Not only did the sale end another melodrama of failed talks that had tarred Jakarta's reputation among foreign financiers, but it also paves the way for the Indonesian Bank Restructuring Agency (IBRA) to clear a backlog of stalled asset sales.

FRAUD BUST. The move comes in the nick of time: The government had a rigid Mar. 31 deadline set by the International Monetary Fund to raise enough money to balance the national budget. The sale also coincides with a housecleaning: IBRA's new chairman sacked his deputy for making slow progress. And on Mar. 27, police arrested Suharto crony Mohamad "Bob" Hasan, who IBRA says amassed $710 million in debt, on fraud charges. "Now things are actually moving in the right direction," says a foreign banker in Jakarta.

And what a lot of work there is to do. Still floundering after its 1997 financial collapse, Indonesia must restructure its banking sector and sell off seized assets to get the economy moving again. IBRA, run by the Finance Ministry, needs to restructure $30 billion in nonperforming loans acquired from dozens of nationalized banks, liquidate 200 companies, and sell half a dozen large banks seized since riots forced Suharto to resign in May, 1998. With the Astra deal done, IBRA now hopes to raise $2.5 billion by yearend through asset sales. The agency has issued a hefty shopping catalog of five nationalized conglomerates with hundreds of subsidiaries ranging from tiremakers to Bali resorts. And it plans to list six big commercial banks, including Bank Central Asia and Bank Bali.

Besides helping Jakarta pay its bills, the sales will dramatically open Indonesia's economy to foreign investors. The new reformist government of Abdurrahman Wahid knows there is no other way out. "We realize that only foreign direct investment can help Indonesia's economy recover," says IBRA Chairman Cacuk Sudarijanto. Cacuk headed state-owned Telekomunikasi Indonesia in the mid-1990s but was sacked for refusing to do business with the Suharto family. Since taking office in January, after Wahid fired the previous IBRA chief, Cacuk has hired two trusted associates as his deputies to get the process moving.

Cacuk is anxious to seize the momentum. On Mar. 28, he and his negotiators flew to Singapore to meet with 20 potential investors, including a German chemical company. As with Astra, which has more than 60 subsidiaries, his goal is to find investors to buy huge stakes in entire conglomerates rather than cut hundreds of small sales. The new owners would then be free to carve up the conglomerates as they see fit.

Some of Indonesia's biggest groups are next on the block. The 107-company Holdiko Perkasa group, once owned by Suharto's lifelong friend Liem Sioe Liong, includes national television station Indosiar, 24 palm-oil plantations, and seven timber companies. IBRA says it will also sell a stake in First Pacific Co. it seized from the Salim family. Another group, Kiani Wirudha, consists of 30 companies seized from Hasan and includes the modern Kiani Kertas pulp and paper mill.

To sell a 30% stake in Bank Central Asia, a former venture between Liem and two Suharto children, IBRA plans an international road show in April. Indonesia nationalized BCA, the country's largest commercial bank, after a bank run following Suharto's downfall. BCA is still considered the country's most modern bank and is the only one that allows businesses to make small cash deposits and withdraw them the same day across the country. If IBRA can pull off that sale, it plans to take another crack at unloading Bank Bali.

But before it could do anything, IBRA had to prove it could at least close a deal on Astra. "You have to jump-start the process by selling the better assets," says Philip Lee, a vice-president of J.P. Morgan & Co., financial adviser to Cycle & Carriage Ltd., the winning bidder. A consortium led by Newbridge Capital had earlier tried to buy Astra but was thwarted after Astra's management prevented the Americans from examining the books.

HOT MINIVAN. The government then opened Astra's sale to public tender, and the Cycle & Carriage-led group won. The Singapore-based firm, controlled by Jardine Strategic Holdings Ltd. of Hong Kong, distributes Mercedes-Benz sedans in Asia. Jardine had first approached the Indonesian auto maker in 1991, when it needed funds to expand its parts-manufacturing businesses. It inquired once more in 1992, after Astra's founding Soeryadjaya family sold out to cover losses at their failed Bank Summa. It did so yet again in 1998, when Astra was restructuring $1 billion in debt and IBRA seized the nearly 40% of Astra from Suharto cronies who had failed to repay their debts. Cycle & Carriage's Managing Director Philip Eng would like Astra's dominant position in the Indonesian car market as a substitute for his $10 million regional Mercedes wholesale distribution business, which DaimlerChrysler will take over later this year. "Jardine has had its eye on Astra for 10 years," says Neville Venter, Cycle & Carriage's group finance director. Besides, Indonesian car sales are expected to jump at least 50% this year from 1999's abysmally low 90,000 units. Consumer demand for the latest model of Astra's $19,000 Kijang minivan, produced in a joint venture with Toyota Motor Corp., is so strong that orders are backlogged through August.

Venter says Cycle & Carriage is also interested in Astra's palm oil plantations and motorcycle businesses. But auto-part and truck assembly operations that haven't been profitable since Indonesia lowered import tariffs last year are likely to be sold. "Some protection has been removed, and that will be the painful part," says Astra Senior Vice-President Ridwan Gunawan, who made a recent trip to Los Angeles to promote sales. "Some of our products will have to go." Cycle & Carriage says it doesn't plan to break up Astra or change management, including President Director Theodore P. "Teddy" Rachmat.

If only there were more companies like Astra for sale. Unfortunately for IBRA, the job only gets tougher. Indonesia's seized banks may remain unattractive to buyers as long as the country's bankruptcy judges consistently fail to rule against well-connected debtors. "Who's going to buy a bank in a country where the bankruptcy courts don't work?" asks a foreign banker. The IMF, saying that reforms have been too slow, is refusing to disburse a $400 million loan to the government. That puts even more pressure on IBRA to raise funds.

Cacuk and his new team seem determined to do what they can. Indonesia still faces a long journey before it emerges from the tunnel. But it now seems to have a management team willing to get started.

By Michael Shari in Jakarta, with Sheri Prasso in Los Angeles