Indonesia: A Tycoon Under Siege
There was a time when Salim Group, one of Southeast Asia's largest conglomerates, had everything. Its founder, Liem Sioe Liong, a Chinese immigrant to Indonesia, worked in his uncle's peanut oil shop in a backwater town, scraping together the savings to start a business. Along the way, he changed his name to the Indonesian-sounding Sudono Salim. More important, he befriended a hugely ambitious army officer named Suharto. After Suharto took over as President in 1966, he rewarded Liem with lucrative franchises in banking, flour milling, and telecom. By 1997, Salim Group had $20 billion in assets and some 500 companies. Liem was not just big among the ranks of Southeast Asia's ethnic-Chinese tycoons. He was gargantuan.
A year later, Liem has fled Jakarta for the safety of Los Angeles, far from the rioters who burned down his Jakarta home in May during unrest that brought Suharto's resignation. With the old man out of the picture and Suharto in disgrace, Liem's son Anthony Salim is now scrambling to save his family's assets. But the mood in Indonesia has turned savagely against the tycoons who supported the old regime. "They should not expect the treatment they got in the past," says Ginandjar Kartasasmita, Coordinating Minister for Finance, Economy & Industry in the new government of President B.J. Habibie.
It is unclear how much of Salim Group Anthony will be able to salvage after his debts are paid. The government has seized control of the group's Bank Central Asia (BCA), the biggest private bank in Indonesia, charging it with improper lending practices. Regulators are demanding $4.8 billion from Salim Group by Sept. 21 to cover the bank's debts. Otherwise, they threaten to begin seizing its assets. Habibie is also dismantling the monopolies on food staples that guaranteed the vast wealth and power of the Salims. And indigenous Indonesian, or pribumi, business groups are lobbying Habibie to dismantle the group and parcel it out among them. The Indonesian depression has wiped at least 40% off the value of Salim's local assets, estimates Wilson Nabanan, head of Indonesian credit agency CISI Raya Utama. "Even without the political pressure, Salim Group would still be bankrupt," says Nabanan.
STRONGMEN. The Salim story has become a cautionary tale for the new Asia. Throughout the region, the shock of depression and political tumult is rocking the corporate empires that have dominated businesses and entire countries for decades. The tycoons who threw in their lot with the strongmen of pre-crisis days are finding the game changed. That's especially true for the Salims.
Yet Salim Group has big strengths outside Indonesia, in corporations based in Hong Kong and Singapore, beyond the reach of Indonesia's new rulers. So it's possible Anthony can dig up funds through his outside empire to keep going. First Pacific Co., a Hong Kong-based property, banking, and telecom company, is a potential source of cash.
But with the bulk of its assets inside Indonesia, the group is exposed to the wrath of the government, which has mounted a public campaign to stamp out cronyism and corruption and make Indonesia a cleaner place to do business. "At some stage, they have become too dependent on government support," says Ginandjar. "Of course, now that has become a liability for them."
NO CHOICE. Salim did not respond to repeated requests for an interview for this article. But a Salim Group executive claims the company was forced into unprofitable businesses, such as flour milling, by the Suharto regime. "The government needed food," says the executive. "So it was an assignment. It wasn't that we wanted this." Company executives say they had no choice but to play by Suharto's rules if they wanted to do business in his Indonesia.
The Salims even today have Indonesian admirers who say the country needs able business leaders. Anthony, who returned from a London technical college in 1973, worked his way up from a low-level job. His father made him president and CEO in 1992. "Anthony Salim is the most intelligent and resourceful businessman in Indonesia," says CISI's Nabanan. Such confidence leads the CEO of a bank that funded the group to ask: "Will there be a sequel--The Empire Strikes Back?"
Meantime, Salim Group companies may soon test Indonesia's new bankruptcy law. Many analysts believe Salim Group has more than $3 billion worth of foreign debt in three of its Jakarta-listed companies alone.
Then there's the local political mood, which regards Liem as an old Suharto crony. A wave of anti-Chinese riots in May and attacks on property owned by the Suharto clan triggered a nationwide run on Salim's BCA, 30% owned by Suharto son Sigit Harjoyudanto and daughter Siti Hardiyanti Rukmana in an arrangement that Salim Group executives say they were forced to accept.
The run started on May 18 and lasted for weeks, wiping away the bank's capital. This suddenly gave the new government leverage over Salim Group. Anthony was the first Indonesian banker in trouble to ask the Indonesian Bank Restructuring Agency (IBRA) for help. IBRA responded by nationalizing the bank, recapitalizing BCA to the tune of $3 billion. Then an audit found that the bank's corporate affiliates and shareholders, including the Suharto children, had been lending money to themselves in violation of Indonesian banking rules. Bank Indonesia, the central bank, sets a limit to such intragroup loans at 20% of an entire portfolio; at BCA the ratio was 50%. IBRA wants an additional $1.8 billion to make up for those loans.
The government has Anthony Salim in a corner. If he cannot repay the $4.8 billion by Sept. 21, Jakarta can start seizing assets. The government has said it is prepared to seize noodle maker Indofood Sukses Makmur, Salim's profitable but debt-ridden company that makes 90% of Indonesia's noodles.
Yet Salim is negotiating with IBRA "in very good faith," says an economist familiar with the negotiations. It has already sold a small stake in Manila brewery San Miguel Corp. for $70 million. And it could raise more cash by selling off parts of its holdings in Singapore.
REAL LOSER. But Jakarta bankers close to the negotiations say the Salims probably don't have enough time to raise the cash. IBRA officials say the family will probably be left with no more than a 20% stake in their major holdings but that Anthony could still maintain management control.
If there is a real loser in this story, it could be Indonesia. Salim Group employs 200,000 Indonesians and has a hand in feeding all 211 million of them. BCA is the bank most used by Indonesian businesses. Salim's listed units--Indofood and Indocement Tunggal Perkasa--at one time made up 15% of market capitalization on the Jakarta exchange. "What do you get if you destroy BCA, Indocement, and Indofood? You destroy the economy," says one Jakarta economist. Yet whatever happens, the Salims must now pay for the exalted position they held for so long.