[Kabar-indonesia] AFR: Jakarta Observed: Richest man has biggest debts

[Joyo at aol.com]

Australian Financial Review
Wednesday, November 8, 2006

Jakarta Observed

Richest man has biggest debts

Morgan Mellish

Many businessmen have long suspected being named in a
magazine rich list may be bad for their financial health.
Well, it now looks like Indonesian tycoon Sukanto Tanoto can
testify to that.

In September, the owner of diversified paper, palm oil and
energy group Raja Garuda Mas (RGM) was in effect outed as
Indonesia's richest man by Forbes Asia.

In its inaugural rich list for Indonesia, the magazine
estimated Tanoto and his family were worth $US2.8 billion
($3.6 billion). That was much more than other Indonesian
tycoons like Putera Sampoerna, Eka Tjipta Widjaja and Liem
Sioe Liong, who were commonly believed to be among the
country's richest men.

But there was a problem for the publicity shy, ethnic-
Chinese billionaire. For he also topped another, less
salubrious list. He was the largest debtor to state-owned
lenders Bank Mandiri and Bank Negara Indonesia, owing them
about $US1.5 billion - a hangover from the 1997-98 Asian
financial crisis.

For years, the banks had been trying to get more of their
money out of Tanoto, who now lives outside the reach of
Indonesian regulators in Singapore. It appears booming pulp
and paper markets and the pressure of newspaper headlines
about his wealth helped bring about a new deal. Last week,
Tanoto's company announced it had renegotiated its debt,
more than doubling annual interest and principal repayments
from $US61 million to $US140 million.

"The president director of Bank Mandiri started complaining
about Sukanto Tanoto breaching debt covenants a few weeks
before the Forbes article came out," says political analyst
Kevin O'Rourke. "After the article came out, Tanoto finally
came to the table and did the renegotiation. I think it was
a factor.

"These tycoons always try to avoid that type of publicity
because it raises all sorts of questions about their tax
obligations and debt repayment status."

Tanoto's company said in a press release: "The terms of the
revised agreement give both parties benefits as well as
acknowledging the success and good performance of our group.
We appreciate the support of the banks."

Before the Forbes article, Tanoto was better known for a
financial scandal at a bank he owned, which is still being
investigated, and allegations his pulp and paper operations
had caused environmental damage.
"[Him topping the list] was a surprise, nobody ever thought
it would be him," says O'Rourke. "But I think it's accurate.
It's a reflection of the boom in pulp prices. They're just
massively invested in that commodity."

Donk Ganie, from non-government organisation Indonesia Asset
Watch says the new agreement is a deception. "The president
of Bank Mandiri has never been serious about handling
Tanoto's debt as he used to be involved in lending to him.
[Tanoto] escaped to Singapore and he is still a fugitive,"
he says.

Tanoto's story is one of wealth, controversy and continual
reinvention. He was born in 1949 in Medan on Sumatra.

His father ran a store selling car parts and bottled petrol.
He describes his mother as stern: "I mostly ate rattan," he
once said, referring to the cane used to whip children.

He worked for a building contractor affiliated with
Pertamina, the state oil monopoly, before setting up Raja
Garuda Mas in the early 1970s in the timber and palm oil
industries.

In the 1980s, he diversified into pulp and paper and bought
a distressed bank, which he renamed Unibank. In the early
1990s, he borrowed hugely - the debt he is still paying off
- to build one of the world's biggest pulp and paper mills
in Riau in central Sumatra.

In June 1997, just a month before the financial crisis, he
listed Unibank on the Jakarta Stock Exchange. When the
crisis hit, Unibank, which had lent heavily to its sister
companies, soon ran into trouble, as did other parts of his
empire.

In 2001, Unibank's assets were frozen by Indonesia's central
bank after a series of controversial transactions came to
light. The Finance Ministry requested a travel ban be
imposed on Unibank's directors and owners, but Tanoto had
already left for Singapore. Not long after, Deutsche Bank
foreclosed on a $US100 million loan to Tanoto's group and
took control of a stake in a coalmine. That issue is still
being fought over in Singapore's courts.

Since then, however, his fortunes have improved. He's made a
number of investments in China and benefited from strong
pulp and paper prices. He now controls one of the world's
leading pulp and paper producers and other interests include
palm oil, engineering and construction.

"Sukanto Tanoto has ambitions to develop a number of
projects, but no adequate financial support," says Gadjah
Mada University economist Revrisond Baswir. "That's why he
renegotiated his loan - to get new support for his
ambition."

So, is Indonesia's richest man welcome in his home country?

"He frequently comes to Jakarta to take care of business,"
says a spokesperson for RGM Indonesia. "He didn't get a ban
imposed on him by the Attorney-General's Office, as reported
by the media. He never has a problem with immigration
officers at the airport when he arrives."

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Joyo Indonesia News Service
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