[Kabar-indonesia] AT: Indonesia's Richest Man - Plantation Magnate Sukanto Tanoto

[JoyoNews at aol.com]

Asia Times
Saturday, October 14, 2006

Trials and Travails of Indonesia's Richest Man

By Bill Guerin 

JAKARTA - Publicity-shy paper and plantation magnate Sukanto Tanoto is in 
Indonesia's national headlines after topping two high-profile lists. 

Forbes Asia last month listed the 56-year-old tycoon as the richest 
individual in Indonesia, with assets worth about US$2.8 billion (Rp25.2 trillion). In 
June, the 
self-made ethnic-Chinese tycoon also topped a list of state-owned Bank 
Mandiri's 
six biggest debtors. 

Although Vice President Jusuf Kalla and senior cabinet minister Aburizal 
Bakrie, both ethnic-Malay Indonesians, known locally as pribumi, also featured 
prominently on Forbes' wealth list, media attention has focused on Tanoto. The 
businessman has recently been linked to a revived financial-fraud investigation, 
although no formal charges have yet been filed against the tycoon. 

After a joint decision by the national police chief and the attorney general, 
a corruption investigation has after five years in abeyance been restarted 
involving Unibank, a financial institution once owned by Tanoto. Corruption 
allegations first surfaced against Tanoto in September 2000 when a central-bank 
investigation into Unibank discovered discrepancies with the bank's outstanding 
debt, which was in the form of an export draft worth $230 million, or about 
Rp2.3 trillion. 

The revived charges come as President Susilo Bambang Yudhoyono heats up his 
"war on corruption", which includes vigorous investigations into bad loans 
parked at state banks. Some international observers have insinuated that the 
anti-graft campaign is disproportionately targeting ethnic-Chinese businessmen over 
indigenous Indonesians. 

Singapore's founding father and Minister Mentor Lee Kuan Yew last month 
accused Indonesia of just that, discriminating against its ethnic-Chinese minority. 
"Our neighbors [Indonesia and Malaysia] both have problems with their 
Chinese. They are successful. They are hard-working and, therefore, they are 
systematically marginalized," the elder statesman said. 

Many of Indonesia's ethnic-Chinese business leaders fled to majority-Chinese 
Singapore after killings, rapes and looting of their businesses in Indonesia 
followed strongman Suharto's May 1998 downfall. The local media estimate that 
they parked billions of dollars in Singaporean banks, and some have declined to 
reinvest their funds in Indonesia. Others, accused of corruption and 
pilferage, fled to Singapore to escape prosecution, according to the Attorney 
General's Office. 

Fairly or not, Tanoto, son of a migrant shopkeeper and an Indonesian citizen, 
has often been viewed as part of that diaspora to Singapore. His Asia Pacific 
Resources International Holdings Ltd (APRIL) is managed from Singapore and is 
one of the world's leading pulp-and-paper companies, with production 
operations in both Indonesia and China. 

APRIL is the flagship of Tanoto's Raja Garuda Mas, or RGM International 
Forestry Group, which is likewise based in Singapore. The global company has assets 
in excess of $5 billion and has established a corporate presence in 
Singapore, Indonesia, mainland China, Hong Kong, the Philippines, Finland and Brazil. 
One of its subsidiaries, PT Asianagro Agung Jaya (AAJ), is one of the biggest 
producers of crude palm oil in Indonesia. 

With rubber and cocoa estates and more than 200,000 hectares of oil-palm 
plantations, AAJ is now aggressively investing in alternative energy, including 
plans for a $38 million bio-diesel factory in Riau designed to produce 100%-pure 
bio-diesel, which can be used as automobile fuel without being mixed with 
petroleum-based diesel fuel. The planned investment is notably in line with a new 
government policy to promote the production of more biofuels. 

Wealthy Minority

Although it accounts for only 3% or 4% of Indonesia's 238 million population, 
the mostly urban-based ethnic-Chinese community dominates retail business and 
controls many of the country's major industrial conglomerates. Upon achieving 
independence, Indonesia's ruling pribumi military leaders, including Suharto, 
preferred to outsource development of the country's natural resources to 
ethnic-Chinese businessmen. 

Through that patronage system, Tanoto developed and has maintained strong 
political connections with the country's ruling pribumi elite, including inside 
the current administration. And several of his business interests overlapped 
with Indonesia's largest conglomerate, the Salim Group, once closely and 
corruptly linked to the ruling Suharto family. 

When Tanoto established RGM in 1974 as a humble plywood manufacturer, Suharto 
notably presided over the company's opening ceremony. Yet to date there is no 
evidence that Tanoto, who has consistently denied receiving any special 
privileges from the former strongman, secured any government-tendered concessions 
or contracts through corrupt means. 

To the contrary, foreign investors at the time often viewed his business 
empire as more market-oriented than most other, patronage-driven Indonesian 
conglomerates. In a heady era when the World Bank famously praised Indonesia as a 
"miracle" economy, Tanoto listed APRIL on the New York Stock Exchange in 1994 to 
generate equity capital and facilitate bank loans. 

Still, Tanoto's enterprises were often a source of controversy. One of the 
most notorious cases involved his original pulp and rayon mill, PT Indorayon 
Inti Rayon, which was highly criticized by the local community and 
environmentalists for its lax pollution controls. The plant was forced to close in 1998 
after violent protests by local residents angered about alleged pollution of 
nearby Lake Toba - Southeast Asia's largest lake and Sumatra's biggest tourist 
attraction. The company was later investigated for illegal logging operations - 
though those charges were never substantiated. 

Deep in Debt

As with many big conglomerates during Indonesia's era of rapid economic 
growth, Tanoto established a bank to finance and expand his multibillion-dollar 
businesses. In late 1987 he acquired United City Bank and thereafter changed the 
financial institution to Unibank. 

A decade later, what had been a small private bank was a major publicly 
listed company with total assets of Rp1.9 trillion and chaired by respected 
economist Irzan Tanjung. However, the 1997-98 Asian financial crisis hit Tanoto's 
businesses hard and sent his bank's balance sheet deep into the red. In May 1998, 
Bank Indonesia, the country's central bank, revealed that Unibank had 
violated a legal limit that restricts banks from lending more than 20% of their total 
assets to their own affiliated companies. 

It was later revealed that some 51% of Unibank's total assets were tied up in 
loans to companies linked directly or indirectly to Tanoto. By October 2000, 
Unibank had a capital-adequacy ratio of negative-221.43%, and its capital was 
Rp2.41 trillion in the red. On August 21, 2001, two months before its assets 
were legally frozen by government regulators, 73% of Unibank shares, or 2.47 
billion shares valued at Rp61.8 billion, were sold in a shadowy transaction on 
the Jakarta Stock Exchange. 

Tanoto's securities house, PT Unisecurindo Abadi, was the most active trader 
that day, and Unibank notified regulators about the change in ownership only 
days before its state-ordered closure. That raised eyebrows with some 
stock-market analysts, who believed the move was engineered to protect Tanoto from his 
obligations as the controlling shareholder. 

Yet under Indonesia's capital market law, the obligation to report to the 
regulatory Capital Market Supervisory Agency (Bapepam) applies only to those who 
own more than 5% shares of an issuer. The bank had Rp4.4 trillion in assets 
when it was shuttered, and the government later imposed a travel ban on Tanoto, 
his wife, and Unibank's directors and commissioners. 

Now, Tanoto is apparently being linked to a corruption scandal over alleged 
improper lending activities at the government's biggest financial institution, 
Bank Mandiri. The country's largest lender began operations in August 1999, 
formed from the merger of four state banks devastated by the 1997 financial 
crisis. Mandiri is 68% owned by the government, and its role in the purchase of 
distressed assets from companies controlled by businessmen linked to former 
president Suharto has come under new scrutiny. 

Mandiri Bank's former president director, vice president and corporate 
banking director were all tried over an $18.5 million lending scandal but were 
exonerated from all charges in South Jakarta District Court in February this year. 
Together with state-owned Bank BNI, the country's second-largest, Bank Mandiri 
accounts for the bulk of the Rp27 trillion of outstanding non-performing 
loans in Indonesia's banking industry, which represent about half of the total 
assets in the banking system. Bank Mandiri's NPLs stand currently at a whopping 
26.6%. 

Bank Mandiri's chief executive officer, Agus Martowadojo, has said, "If only 
five or six of these major debts were settled, Mandiri's NPL level would 
return to normal." President Yudhoyono launched a probe into Mandiri Bank in early 
2005, which has brought Tantono's accounts with the state financial 
institution under the regulatory microscope. 

APRIL had borrowed a total of $1 billion from a consortium of Mandiri, BNI, 
and Panin, Niaga, and Danamon banks to finance the development of its 
integrated paper-manufacturing plant known as Riau Complex. 

Though the company benefited from the hugely depreciated local currency - 
because its input costs were mainly procured in local currency and revenues 
received in US dollars - RGM managers say APRIL incurred an additional $500 million 
in accumulated debt because some lenders insisted their credits be converted 
from rupiah to dollars at depreciated market spot rates. 

By 2000, when APRIL's eventual debt workout was concluded through a state-run 
debt-restructuring facility, the company's debts had swelled to about $1.5 
billion. Debt-related cash flow problems were later compounded by the collapse 
in confidence and devaluation of paper and plantation assets across the region 
after the corporate bond default in 2001 of its rival Asia Pulp and Paper 
(APP). 

APP's aggressive expansion into China had led to overcapacity and a mountain 
of unwanted pulp, and APRIL requested that lenders amend its cash-flow 
projections to reflect the collapse in global pulp prices, which fell about 50% in a 
few months between 2000 and 2001. Bankers countered by accusing APRIL of using 
low pulp prices as an excuse to wriggle out of their debts. 

They also charged that APRIL, despite its alleged capital crunch, was 
expanding its pulp production lines and aiming to add another paper mill. APRIL still 
owes its biggest creditor, Mandiri Bank, Rp5.3 trillion, but repayments to 
the state-owned bank and other financial institutions are reportedly being made 
in line with their original agreement, according to company executives. 

The political winds are blowing against big corporate debtors, however. State 
Minister for State Enterprises Sugiharto complains that Mandiri has given too 
much tolerance to debtors. Now delisted from the Jakarta Stock Exchange, 
APRIL does not publicly publish its profit figures, but Mandiri has been pressing 
for almost two years for an increase in repayments from $61.2 million to $120 
million per year, reasoning that the global price of paper and pulp has jumped 
from about $400 per ton in 2002 to some $700 today. Martowardojo justifies 
such demands through a revised government regulation that grants authority to 
state-owned banks to take firmer measures against bad debtors. 

"Basically, they'll not escape the long arm of the law," he said recently. 

The China connection 

The Forbes revelations that Tanoto is worth more than $2.8 billion and still 
one of the country's largest corporate debtors has clearly irked certain 
powerful elements of the political establishment. 

Yet there are few, if any, indications that Yudhoyono, who is vigorously 
trying to lure new foreign investment into the country, wishes to alienate 
unnecessarily Indonesia's ethnic-Chinese business community, which, despite shipping 
billions of dollars' worth of assets to Singapore, still dominates the local 
economy. And that same community is playing an increasingly important role in 
strengthening and expanding trade and investment ties with China. 

For instance, Tanoto's RGM plans to invest up to $6 billion in China by 2010, 
funding a series of major power-project investments that include a gas-fired 
combined-cycle gas-turbine power plant in the Chinese coastal city of Xiamen. 
Announced in August 2005, the investment was widely viewed as a 
confidence-building measure toward improving Indonesia-China diplomatic and economic ties 
under Yudhoyono's administration. 

Those ties came under strain after the government's perceived in Beijing as a 
tepid response to the 1998 riots targeting Indonesia's ethnic-Chinese 
community. Yudhoyono has moved aggressively to rebuild that lost trust and has, over 
the past two years, secured pledges of billions of dollars' worth of new 
Chinese investment into Indonesia. Significantly, Beijing is also playing a 
behind-the-scenes brokering role between ethnic-Chinese Indonesian businessmen and 
Yudhoyono's government. 

In a closed-door meeting last year in Beijing between Vice President Kalla 
and several top Chinese-Indonesian businessmen, they agreed gradually to 
repatriate $1 billion parked overseas in the wake of the 1997-98 financial crisis, 
according to local media reports. Among the Chinese-Indonesian tycoons in 
attendance at the meeting were Sofjan Wanandi, Tomy Winata, Pradjogo Pangestu, 
Anthony Salim and Tanoto. 

According to Chinese-Indonesian businessmen present at the meeting, they 
demanded that the government immediately raise fuel prices to reduce the massive 
cost of the fuel subsidy and create a more stable and sustainable economic 
climate. In return, they pledged to invest more in Indonesia if there was a clear 
indication that the government would not impose new subsidies, the cost of 
which they would disproportionately have to shoulder. One month later, Yudhoyono, 
in his most far-reaching economic decision since his election a year earlier, 
slashed fuel-price subsidies. 

That clearly indicates that the likes of Tanoto still have a large measure of 
political clout inside the Yudhoyono administration. Restoring confidence in 
the political and business environment would arguably go a long way toward 
encouraging new investment flows from Indonesia's ethnic-Chinese community. As 
such it seems just as likely that the president's anti-graft campaign will act 
to absolve rather than prosecute many embattled tycoons, including perhaps 
Tanoto. 

RGM president Ibrahim Hasan told Asia Times Online on Tuesday that a new 
repayment deal had already been negotiated with Bank Mandiri, which will be 
announced in the near future. As for the corruption allegations, they remained 
tight-lipped on the grounds that they had "no official information" on the claims. 
It seems that Tanoto could stay on top of both the Forbes and state debtors 
lists for a long time to come. 

Bill Guerin, a Jakarta correspondent for Asia Times Online since 2000, has 
been in Indonesia for 20 years, mostly in journalism and editorial positions. He 
has been published by the BBC on East Timor and specializes in 
business/economic and political analysis related to Indonesia. He can be reached at 
softsell at prima.net.id. 

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Joyo Indonesia News Service
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