The Chinese Tycoons Start Hunting For Cover

The 28-year reign of Indonesia's President Suharto has been very good for Eka Tjipta Widjaja. The Chinese-Indonesian tycoon runs Sinar Mas Group, a pulp-and-paper conglomerate that has holdings across Asia. Widjaja and other ethnic Chinese executives like him have made their fortunes thanks largely to ties with Suharto's family. Now, with the 73-year-old military strongman up for reelection in three years, the tycoons are worrying about recriminations they might face in a post-Suharto era.

With that in mind, some of the richest families in Asia are turning their closely held empires into publicly traded companies. The goal is to acquire buffers in the form of foreign investors who could deter any future rulers in Jakarta from mischief. With foreigners among the stockholders, future Indonesian governments might think twice before threatening companies.

SCAPEGOATS. The tycoons' worries stem in part from the troubled history of the Chinese in Indonesia. While they make up just 3% of the population, Chinese control three-quarters of the economy--which makes them easy scapegoats. When then President Sukarno lost power in 1965, thousands of Chinese were slaughtered amid allegations that Beijing had backed a coup attempt. Last April, striking workers killed a Chinese factory owner in the Sumatra city of Medan. Even billionaires such as Widjaja use Indonesian names rather than their Chinese ones.

As a result, Widjaja isn't taking any chances. Last year, his family incorporated Asia Pulp & Paper Co. in Singapore. In late March or early April, the new company plans to launch a $420 million initial public offering of American depositary receipts on the New York Stock Exchange, according to family attorneys. Officials of Sinar Mas and Morgan Stanley & Co., which is underwriting the IPO, declined to be interviewed.

Sinar Mas has competition in the race to reorganize. Another paper-and-pulp power, Raja Garuda Mas Group--owned by ethnic Chinese tycoon Tanoto Sukanto--has formed a new Singapore-based company, Asia Pacific Resources International Holdings Ltd., and hopes to raise $240 million on Wall Street to invest in paper mills in China. Prajogo Pangestu, an ethnic Chinese whose stock holdings alone are valued above $2 billion, last June turned a Malaysian construction company into a public holding company and floated its stock in Singapore. The next logical candidate to take this route would be Liem Sioe Liong, said to be Southeast Asia's wealthiest ethnic-Chinese tycoon. His Salim Group is being reorganized.

KEEPING MUM. Going public abroad will drastically change the way companies are run. Until the formation of Asia Pulp & Paper, for instance, Sinar Mas was an informal grouping of family-controlled companies. Family groups have subsidiaries listed on the Jakarta exchange, but they account for a small portion of assets. The new structure will make it easier for investors to weigh the risks of holding stock in Indonesian companies, says Greg Miller, head of research at Jardine Fleming Nasantara in Jakarta.

The reorganization of Sinar Mas thus offers the most revealing public glimpse yet of the Widjaja family's holdings. According to an Asia Pulp & Paper prospectus, the new holding company is capitalized at $4.17 billion, with sales of $700 million in 1994's first nine months.

The game plan is not without shortcomings. Investment bankers note that the Widjaja family, whose companies are managed by Eka Tjipta Widjaja's grown children, is drawing unwelcome attention from politicians back home. Although the Widjajas have invested some profits in China, they have denied doing so to avoid inflaming nationalism in Indonesia. Now that they've admitted as much to Wall Street, pressure to keep money in Indonesia will only increase. "The conglomerates are afraid of being accused of capital flight," says Fadjar Limin Sutandi, an analyst at Sigma Batara, an Indonesian brokerage.

For executives accustomed to the secret world of Indonesian business, life in the public eye will not be easy. Companies that grew big under Suharto's favors may find Wall Street much less forgiving, says Aristides Akatoppo, founder of the respected daily paper Suara Pembaruan. But the tycoons are gambling that the protection they receive from the outside world will allow them to rest easier all the same.

By Michael Shari in Jakarta

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