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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

SINGAPORE SPREE

After a lull, Indonesian money is on the move again.
What's behind the action and should Jakarta and the Lion City worry?

By Alejandro Reyes


THE ANNUAL SHOPPER'S BONANZA is known as The Great Singapore Sale. This year, the island-wide discounts ended in July. Tell that to Indonesia's tycoons. The joke in Singapore's business circles is that the Big Sell-Off is still on -- this time, the foreigners are buying up local companies. Two weeks ago, the judicial managers of ailing property and electronics group Amcol announced that they had accepted a rescue package proposed by Sinar Mas, Indonesia's third biggest conglomerate. Days later, kretek (clove) cigarette magnate Putera Sampoerna launched a bid to take over telecommunications equipment supplier Transmarco, whose biggest shareholder at the time was Sukamto Sia, another Indonesian businessman. Sukamto also holds a major chunk of Amcol stock.

The moves came in the wake of Jakarta's worst riots in three decades, the result of a government crackdown on the political opposition. "It's more than a coincidence," says one Indonesian palm-oil trader who looks after the family business in Singapore. Adds Simon Koh, an analyst with Deutsche Morgan Grenfell: "Through public listings in Singapore, businessmen can convert their assets to cash. These could be signs of plans to move out." Others disagree. "I don't see these as moves on the political chess board's end game," says Eugene Galbraith, president-director of Hoare Govett Asia Indonesia. He regards the takeovers as an indication of the growing clout of Indonesian businesses and their need to expand regionwide.

Whatever the reason, Singapore is in no danger of being swallowed up. To date, Indonesian-controlled companies account for less than 1% of the stock market's total capitalization. But last year, the Stock Exchange of Singapore censured Sukamto and fellow Indonesian Johannes Kotjo for breaching bourse rules. Both snapped up small listed Singapore companies in 1995. Also casting a cloud: the near collapse in July of Amcol, 17.3% of which was acquired last year by Indonesian tycoon Henry Pribadi and Sudwikatmono, a cousin of Indonesian President Suharto.

So it is perhaps appropriate that another Indonesian company is helping mop up the mess at Amcol. Controlled by ethnic Chinese Eka Tjipta Widjaja, 74, Sinar Mas has proposed forming a new Singapore holding company, known tentatively as Newco, that will buy the virtually bankrupt firm. Sinar Mas will inject $2-billion in assets -- mainly Indonesian holdings in food processing, agribusiness, property and distribution -- into Newco. Amcol stockholders will receive four $1-Newco shares for every three in Amcol, plus a Newco warrant for every 10 Amcol shares. In effect, Sinar Mas values Amcol shares at $1.34 each. The accounting firm Price Waterhouse had said the stocks were nearly worthless.

In July, the courts named Price Waterhouse temporary manager of Amcol pending a rescue or a restructuring. Amid a boardroom struggle between Pribadi and Sukamto, who owns 14% of Amcol, government-appointed probers uncovered irregularities that made it difficult for Amcol to pay its debts. Price Waterhouse said the group needed more than $70 million to meet its obligations. Despite a warning that Amcol's assets, valued at $818 million early this year, might all be required to cover obligations, nine bidders including Pribadi and Sukamto submitted rescue proposals. Of the nine, Suntec Investment, a powerful group of Hong Kong investors who built Singapore's new convention and exhibition center, was said to have the inside track.

Suntec backer Cheng Yu Tung, a leading Hong Kong property magnate, was chairman of Amcol until he stepped down for undisclosed reasons last year. Others in the consortium include high-powered billionaire Li Ka Shing and shipping tycoon Frank Tsao. Sources say Suntec's negotiators laid out an attractive plan -- then backpedalled when serious negotiations got underway.

Amcol's judicial managers then turned to Sinar Mas, even though the Indonesian conglomerate was not exactly a favorite in Singapore. In 1990, Eka Tjipta Widjaja's second son, Oei Hong Leong, sold his stake in Singapore conglomerate United Industrial Corp. after keeping everyone guessing about his intentions. Singapore regulators saw the move as the act of an asset-stripper who takes over a company and moves on. Oei is now based in Hong Kong, where he has built up China Strategic into a major investor in the mainland.

The Widjaja family's attempts to establish a foothold in Singapore, particularly for its Bank Internasional Indonesia, had been rebuffed since. Amcol presented them with a golden opportunity. The rescue package that Eka's eldest son Teguh Ganda Widjaja and fourth son Muktar Widjaja presented to Amcol's managers was worth $166 million more than Suntec's. "They knew they had to pay a premium if they were to get the official blessing," says an Indonesian executive in Singapore who knows the Widjajas. That the group pulled it off indicates how it has evolved in recent years. Sinar Mas is still essentially family-run, with patriarch Eka at the helm and the children in charge of key divisions. But the conglomerate now has a strong corps of professional managers, some of them experienced Filipino executives.

"What Sinar Mas intends to do is to set up a flagship in Singapore," says the source close to the family. That is also what Putera Sampoerna seems to have in mind for Transmarco. The third-generation head of Hanjaya Mandala Sampoerna, Indonesia's most profitable cigarette supplier, sees Transmarco as an ideal vehicle to oversee tobacco and other businesses in Malaysia, Myanmar and Vietnam, says analyst Galbraith. Last week, Sampoerna, 48, increased his stake in Transmarco from 32.1% to 66%, replacing Sukamto as the company's largest shareholder. Sampoerna's reported plans to build up Transmarco into a flagship for regional operations has triggered concerns in Indonesia, where investors have been wondering just what the tobacco tycoon is up to.

The tycoon already spends most of his time in Singapore. A graduate of the University of Houston, he and his American Chinese wife Katie Chow consider the island republic as their second home. Sampoerna ran the family's Malaysian palm-oil and rubber plantation business from Singapore for ten years before returning to Surabaya in 1980 to join the cigarette operations. He took over from his father in 1986. Since the elder Sampoerna's death in 1994, Putera has been trying to professionalize his empire, bringing in executives from Singapore, Taiwan, the U.S., Korea and Indonesia.

Are Sinar Mas and Hanjaya Mandala Sampoerna moving out of Indonesia? Not necessarily. True, some Indonesian Chinese have been acting with extreme caution as the government pushes a more equitable distribution of wealth. Sinar Mas has also been under pressure from the Forestry Ministry, which in 1993 accused the conglomerate's Indah Kiat pulp and paper subsidiary of using illegal timber in its South Sumatra operations. The company paid a $570,000 fine although executives insisted they had done nothing wrong. Sinar Mas also had a run-in with the government over labor importation. But Galbraith, for one, says Sinar Mas and other big Indonesian companies are more concerned about setting up a platform for expanding regional operations rather than escaping political problems at home. "These people definitely have regional aspirations," he says. "Indonesia is booming and people are fanning out."

That is not a new trend. Indonesian tycoons have long been diversifying their portfolios. Billionaire Liem Sioe Liong's Salim Group and the Lippo Group of the Riady family, for example, have a second home base in Hong Kong. Indonesian money has been active in Singapore for years, with most of the country's wealthy Chinese businessmen parking substantial funds in trusts, property and other assets in what is widely regarded as the region's safest haven. "Singapore is a natural choice for them," says analyst Koh. "Many have lived and gone to school here. Their wives come and shop here on the weekends."

Unlike Galbraith, however, Koh believes that Indonesian politics is part of the tycoons' calculations. "There has been capital outflow from Indonesia all along," he says. "With the declining value of the rupiah, many Indonesians started keeping Singapore dollar accounts. After the Medan riots in 1994 [when Chinese businesses were looted], capital outflow accelerated and some tried to shift their assets out." The influx peaked last year. Dominating the action were Johannes Kotjo, once a director of the Salim Group, and Bambang Trihatmodjo, President Suharto's second son and head of the Bimantara group. Between them, they bought a number of listed companies, including ice-cream supplier and restaurant operator ABR Holdings, construction company L&M and United Pulp & Paper.

The stock exchange reprimands of Kotjo and Sukamto slowed the Indonesian advance. Kotjo was censured for his remarks to Bloomberg news service on the possible takeover of United Pulp by a consortium of which he was a member; Sukamto for failing to disclose a pending lawsuit against him in Hawaii. Soon after, the Stock Exchange of Singapore warned that it would not "hesitate to take action against any listed company and its directors if they fail to comply with the exchange's requirements." Says a securities analyst: "The Monetary Authority of Singapore and the SES were worried about Indonesians cornering the market and then leaving. After that, Indonesian-interest stocks didn't perform [well] anymore."

The Amcol debacle further dampened enthusiasm. Many of its investors were Singaporeans who used their Central Provident Fund savings to buy the counter; the government had classified Amcol a "trustee stock" eligible for such purchases. The company has been taken off the recommended list.

All these underscore worries about Indonesians and other foreigners moving into the Singapore market. Whether their purpose is to establish a regional headquarters or to diversify risk because of turbulent domestic politics, Indonesian investors find themselves operating in a commercial environment vastly different from what they may be used to at home. Singapore prides itself on its success in stamping out corruption and its tight regulatory framework. Regulators are also wary of volatile stock price movements. That extends to the property market. A surge in Indonesian buying of Singapore flats was nipped when the government introduced measures to curb speculation in March.

But the emergence of Sinar Mas as Amcol's white knight has renewed interest in Indonesia-linked stocks. It also suggests that Indonesian money is heading for Singapore again. Indeed, other established players like Liem are expanding. About 10 months ago, Qualif, a unit of KMP, the Salim Group's investment arm in Singapore, became a major shareholder in food conglomerate QAF. In July, Qualif raised its stake to 33.2%. Liem has now made a general offer to buy all the shares.

The Salim Group has not made clear its intentions for QAF, which had previously been controlled by managers appointed by the Brunei royal family. But like the moves of Sinar Mas and Sampoerna, its actions are closely followed in both Singapore and Indonesia. "We understand that every country has rules and regulations and we, as foreigners, have to be careful to learn from others' mistakes," Pribadi told a Singapore daily after Kotjo and Sukamto were censured. The tycoons know what they are doing.

--With reporting by Keith Loveard / Jakarta and Santha Oorjitham / Singapore


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