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Two Indonesian tycoons with massive amounts of debt have escaped bankruptcy and are flourishing again, partly as a result of government shelter and forgiveness and partly because of the convenient location of Singapore as a nearby safe haven.
Both own separate Singapore paper and pulp enterprises that are among the biggest in the world. Both ran into severe financial trouble after the Asian financial crisis of 1997-1998 and the ouster of former Indonesian President Suharto, who served as their protector and benefactor, delivering vast amounts of forest land and government contracts across a wide range of activities. But despite Suharto’s fall, and allegations of outright fraud in both Singapore and Indonesia, the two remain well connected in the corridors of power in Indonesia and are now gearing up to benefit from Jakarta's current obsession with alternative energy.
Sukanto Tanoto now leads the Forbes list of Indonesia’s richest people, published in September, with net wealth of US$2.8 billion, despite being chased by Indonesia’s biggest bank, Bank Mandiri, for payments on US$1.5 billion in debt. Eka Tjipta Widjaya, third on that list, reportedly has US$2 billion in net wealth despite the fact that his Asia Pulp & Paper ran up the biggest corporate debt in the history of Asia.
Both have also been accused of helping to destroy the planet through operations that need massive amounts of timber and both have lost banks to the Indonesian government because of debt-related problems, channeling loans to closely-held companies and violating legal lending limits
56-year-old Tanoto, the son of a Chinese migrant shopkeeper, is being investigated in a fraud case linked to Unibank, a private bank that he owned until it was closed down by the government in October 2001 although five years after its closure no charges have been laid against him.
Tanoto controls Asia Pacific Resources International Ltd, known as April, the flagship of his Raja Garuda Mas (RGM International) group, which is also run from Singapore. The second-largest pulp and paper company in Asia after APP (excluding Japan), with combined capacity of about 3 million tonnes per year, most of it in pulp production, it has assets of more than $5 billion and reported annual revenues topping $5 billion from operations in Indonesia, China, Hong Kong, the Philippines, Finland and Brazil.
An April subsidiary, PT Asianagro Agung Jaya, or AAJ, already one of Indonesia's biggest producers of crude palm oil (CPO), is building a $38 million bio-diesel factory in Riau Province, not far from the pulp mill. It already owns more than 200,000 hectares of oil-palm plantations. CPO is also the main feedstock for biodiesel.
By the time Widjaja’s Sinar Mas came unstuck, it owned the equivalent of more than a tenth of Indonesia's foreign debt, 90 percent of which was run up by APP. Its eventual default triggered one of the biggest investment debacles in the history of modern corporate Asia.
Wall Street peddled nearly $6 billion in bonds for APP before the company called a halt to all payments of interest and principal to its creditors in March 2001. Hundreds of creditors laid siege to APP's offices in Singapore, Hong Kong and New York
When pulp and paper prices fell, APP, rather than sell assets to pay off its debts, issued new bonds. As creditor confidence evaporated and its shares nose-dived below $1 the New York Stock Exchange de-listed APP.
APP finally agreed to a complex series of asset disposals and restructuring of debts and obligations but for over two years refused to pay anything to its creditors, saving itself hundreds of millions of dollars in the process.
The group toyed with creditors, particularly import-export banks, exposing the lack of common ground between the bigger lender groups and the countless and diverse smaller creditors. APP gave little away as meeting after meeting saw armies of financial advisers and lawyers representing the creditors match wits against a similar army from the APP team.
Restructuring negotiations were colored by controversy over a bewildering corporate pretzel palace that included a shadowy series of banks in the Cook Islands and Cayman Islands and countless legal challenges before an eventual debt workout that committed APP to paying back almost US$7 billion but only covering the debt of its Indonesian subsidiaries. Despite the fact it was headquartered in Singapore, most of its assets were in Indonesia and China, where debt recovery was chancy at best.
APP agreed to repay creditors US$4.2 billion over 13 years. Another US$2.5 billion was to be paid back over an 18-22 year period. The group pays US$30 million every month into an escrow account to cover the commitment and according to local media reports has paid US$145 million in interest payments this year.
In Indonesia, however, the government effectively wrote off Sinar Mas’s domestic debt while allowing it to keep its assets. APP had once been seen as a great success story for Indonesia, except, eventually by outraged international creditors like Citigroup, ABN Amro, General Electric, Zurich Financial Services Group, BNP, Deutsche Bank, and export credit agencies, Japanese trading companies and some Chinese banks that were all wrapped up in the parcel of paper debt and facing years or even decades before getting their money back. Zurich Financial Services Group in a July 2002 affidavit accused APP of committing fraud and diverting funds of more than US$200 million and placed in Cook Island accounts.
Sinar Mas owned Bank Internasional Indonesia (BII), which was sold off by the government to a consortium of international investors led by Temasek Holdings, the Singapore investment company. BII had a huge loan exposure of almost US$1.3 billion from Sinar Mas and the Widjaya family failed to pass a fit and proper test conducted by the central bank. Eka and his son Indra Widjaja, were president commissioner and president director of BII prior to the state bailout.
Adding to concerns about the Indonesian government’s commitment to cleaning up the mess, the current central bank governor, Burhanuddin Abdullah, is a former independent commissioner at APP. Despite widespread concerns that former bank owners would weasel their way back into the banking sector, Sinar Mas secured the approval of the central bank for its recent acquisition of another financial institution, Bank Shinta. The main man at the bank, which claims to be targeting only the consumer and private banking sectors, is Fugianto Widjaja, Eka's grandson.
The 83-year-old Eka, who came to Indonesia from mainland China in 1930, is now in fragile health after heart surgery and replacement of both kidneys in 1999. Although his debt dwarfs that of Tanoto, he remains untouched by the would-be debt collectors.
In 1997 just before the financial crisis, he was named by Forbes as the 45th richest man in the world with a net worth of over $5 billion. The old man had a penchant for women and traveled in flashy sports cars, flamboyantly dressed. He is said to have as many as seven wives who have brought a total of 30 children into the world, many of them now running his businesses.
Those businesses, fanning out across Asia, are now booming in a big way. Sinar Mas subsidiary PT Sinar Mas Agro Resources and Technology (SMART), managed by Franky Oesman Widjaja, is the biggest plantation conglomerate in Indonesia, owning palm oil plantations and soap factories. It employs 35,000 and its 284,000 hectares of palm oil plantations have a production capacity of more than 665,000 tonnes of crude palm oil.
It recently invested in 100,000 hectares of plantations in East Kalimantan, in cooperation with Civic Group, a consortium of Chinese investors at a cost of US$599 million, US$380 million of that borrowed from the China Development Bank. As of June this year sales had climbed to Rp2.8 trillion, helping turn a 2005 loss of Rp52.3 billion into a profit of Rp14.3 billion.
Significantly, SMART is planning to build a bio-diesel plant, due to the expected rise in demand in coming years.
The pulp and paper business, run by Teguh Ganda Widjaja, generates $3.1 billion in revenue, has 55,000 employees and sells to 65 countries spanning six continents. In China, where it has more than 20,000 employees, it is the largest pulp and paper producer. Its Gold Hai mill on Hainan Island, which began operating in 2004, is China's biggest paper mill,
Sinarmas property and real estate division, run by Mochtar Wijaya, reportedly has property assets worth Rp13.8 trillion, making it the wealthiest property company in the region including China, Malaysia and Singapore. In Indonesia Sinarmas is the main player, owning two of the country's biggest and best-known estates - the 3,000 hectare Delta Mas and Bumi Serpong Damai (BSD) spread across 6,000 hectares.
Sinarmas operates three hotels, one of them Jakarta's Grand Hyatt, and has four industrial estates, 12 housing estates and an office block. Ten new projects are underway. Their publicly listed property company PT Duta Pertiwi had assets of Rp4.7 trillion at the end of 2005. In China Sinarmas owns an industrial estate and an office block in the heart of Beijing. In Malaysia, it owns the Hotel Sofitel and in Singapore an industrial estate and an office block.
Publicly-listed financial services unit PT Sinar Mas Multiartha Tbk, headed by Indra Wijaya, has assets of Rp1.8 trillion and owns Bank Shinta as well as a controlling share in EKA Life, a major life assurance company. Both acquisitions cost Sinar Mas a total of Rp166.5 billion.
As the country heads towards presidential elections again in 2009, rich and well-connected conglomerates may aim to increase their leverage with friends in the corridors of power looking for campaign funds, thus making it even harder for the government to clamp down on forest loss, forest fires and sheer, unadulterated cronyism.
Forbes has certainly done no favors for the two tycoons by bringing them back into the public glare. But then again, it could be argued, what credence can really be placed in a list that does not include even a single member of the Suharto family, which is believed to have assets of US$40 billion?