Dan Murphy, Jakarta – Car maker Astra International has long been among Indonesia's best-regarded companies, one that the son of its founder calls a "cash machine." Its lock on the domestic car industry has allowed it to weather three devaluations of the rupiah, attacks on its showrooms by angry mobs and acrimonious takeover battles. Though it lost nearly 2 trillion rupiah ($200 million) in 1998 when the country was deep in recession, Astra returned to profitability last year.
Driving it back into the black was chief executive Rini Soewandi, among the country's most admired managers. So why does the Indonesian government want to fire her?
The answer is a tale of a powerful family that founded and lost Astra and is seeking to get a foot back in the door; of foreign investors seeking valuable Indonesian corporate properties at fire-sale prices; and of an ambitious block of Muslim politicians. Most of all, the battle over Astra pits the Indonesian Bank Restructuring Agency, or Ibra, which holds assets valued at $60 billion, including a controlling 40% of Astra, against political factions intent on buttressing their own power at the expense of President Abdurrahman Wahid and getting more of a say in how those assets are disposed of. They generally tend to be more protectionist.
Reviving the banks
Ibra's hoard consists of assets seized from the owners of Indonesia's failed banks. It now needs to sell them to help the government cover the $80 billion cost of rebuilding the banking system – something the International Monetary Fund says is the crucial first step in Indonesia's economic recovery.
But the political jockeying around Astra has already killed off a $500 million bid for the company made by Gilbert Global Equity and Newbridge Capital – though the two US investment firms remain in the game.
While other investors have raised their hands, for the moment Ibra has no other formal offer on the table for Astra and the agency now concedes it's unlikely to meet its target of selling assets valued at $2.5 billion to help plug a far larger gap in the government budget for the year to March 31. It's currently $1 billion short.
"This has enormous implications for Ibra and its future deals with investors," says David Chang, head of research at Trimegah Securities in Jakarta. "There's no way this process can be completed quickly now, and this is going to damage Ibra's ability to sell any of its assets."
Selling Astra soon "is still possible, but it's going to be very tight," says Arwin Rasyid, the senior Ibra official working on the aborted Astra sale. "There are some things that are beyond our control, like the political and economic climate." Rasyid says "vested interests" are standing in the way of a sale.
One Of Ibra's biggest critics
The latest turmoil has further undermined Ibra's ability to do deals with foreign investors. Ibra's first attempt at a big sell-off, the $120 million sale of the insolvent Bank Bali to Britain's Standard Chartered Bank, also fell through – the deal collapsed late last year in the face of a revolt by Bank Bali management and a nationalist backlash.
Ibra and the forces arrayed against it are set to collide again at a February 8 Astra shareholders' meeting called by the agency. Ibra wants the shareholders to fire Astra CEO Soewandi because of what it alleges was her effort to foil the sale to Gilbert and Newbridge – which indicated they were likely to replace her when they took over. The agency says Soewandi denied the firms access to company documents and financial records that they wanted to inspect for due-diligence purposes.
A block of powerful Indonesians has lined up to defend Soewandi, saying Ibra cut too sweet a deal with the Gilbert-Newbridge group. "Ibra talks about good governance but they don't practise it," says Fuad Bawazier, the last finance minister of the fallen Suharto government, who has emerged as one of Ibra's biggest critics – and Soewandi's most powerful ally.
The Indonesian press, which played a role in the failure of Ibra's sale of Bank Bali, also has been sympathetic to Soewandi. Some politicians, meanwhile, have suggested that parliament should prevent the shareholder vote; others are lobbying Astra's minority shareholders to vote against removing Soewandi. The outcome is "too close to call," says an Ibra official.
How did this impasse come about? In December, Ibra gave preferred bidding status for its 40% stake in Astra to Newbridge and Gilbert. Edwin Soeryadjaya, youngest son of Astra founder William Soeryadjaya, has been advising the American investors in exchange for a small piece of equity and another shot at managing his father's company, lost in 1992 because of debts at a family investment. Edwin Soeryadjaya, who originally hired Soewandi, has made no secret of his intent to remove her if he gets back in the driver's seat at Astra.
The agreement with Ibra gave the Americans exclusive rights to conduct due diligence for a 35-day period and the right to match any new bid that topped their $500 million offer. But Soewandi denied them access, and when the exclusivity period expired on January 31, Ibra chose not to extend it. Now the agency is back to square one. "We have to begin a new bidding process," says Ibra official Imelda Arismundar.
Three other investor groups have sent letters to Ibra expressing their interest, though no formal bids have been made. They are Lazard Freres & Co., the French investment bank; JG Summit Holdings, controlled by Filipino investor John Gokongwei; and Bhakti Investama, an Indonesian investment company with links to American investor George Soros's Quantum Fund.
In a letter to President Wahid seen by the Review, an ally of the Lazard group said its bid would proceed only if Soewandi was kept on as Astra CEO. But Ibra officials say they are still committed to replacing Soewandi, pointing out that most investors will want to conduct due diligence. Lazard officials in Singapore and JG Summit officials in Manila didn't return calls seeking comment. A Bhakti official confirmed the company's interest but declined to provide details.
Continuing the pursuit
Newbridge and Gilbert, meanwhile, intend to continue their pursuit of Astra, a person involved in the foiled transaction says. Soewandi declined to be interviewed for this article. But in letters to Astra shareholders, she has defended her actions as being in the best interests of the company. She contends the US investors wouldn't sign a confidentiality agreement and should be forced to disclose their plans for Astra before being allowed in. "The confidentiality agreement is important for Astra to protect itself against any confidential material being used against it," she wrote in a January letter to shareholders. Ibra officials counter that the terms of the confidentiality agreement are so restrictive that no potential investor would sign it.
But Astra's best interests appear to have been lost among the host of other issues in the failed deal, ranging from a simple clash of personalities to differing political agendas. The Soeryadjayas, ethnic-Chinese and Protestant, have close links to President Wahid and his broad nationalist coalition. Soewandi, arguably Indonesia's most powerful Muslim chief executive, is close to a Muslim politicial coalition that's proving to be one of President Wahid's biggest political challenges.
The legislators are backing Soewandi against the president and Cacuk Sudarijanto, Wahid's handpicked choice to run Ibra, as a means of buttressing their own power in parliament to push their agenda. Generally speaking, these legislators want Indonesia's Islamic majority to play a bigger role in the economy than it traditionally has. That has often been interpreted as threatening Indonesia's often-embattled, wealthier ethnic-Chinese minority.
"The way you have to look at this is as a turf battle over key economic institutions between the nationalist [led by Wahid] and the Islamic [led by Bawazier] parties," says James Van Zorge, senior partner at Van Zorge Heffernan Associates, a political advisory company in Jakarta. "There's nothing sinister about it, but it's a real risk to economic policy because it induces deadlock."
Bawazier, a friend of Soewandi, says his only interest is in reforming Ibra, an agency he had a hand in creating under former President Suharto. Bawazier, a politician without a party of his own, helped cobble together and fund the "central axis" of Muslim parties that now controls a third of the votes in parliament. He hosts weekly meetings of the group's leadership in his office.
Suspicions of outside agendas
Though Bawazier says he's not opposed to the idea of selling Astra to foreigners and is supportive of the three other potential bids, he and leaders close to him, including Amien Rais, speaker of the upper house of parliament, have traditionally been suspicious of outside agendas. In a January interview with the Suara Rakyat newspaper, Bawazier complained that Indonesia was a "guinea pig" for foreign governments and the IMF to test how much pressure they could put on a country.
Sometimes forgotten in all the turmoil is Astra itself, a diverse agglomeration of activities and 100,000 employees that does far more than build cars. Astra makes tractors, mines coal, operates a palm-oil plantation, and has investments in the telephone network in Sumatra, a plywood factory and a bank. It's already backed by foreign partners such as Toyota Motor of Japan and has the deepest corps of middle management in Indonesia.
William Soeryadjaya founded the company in 1958 to trade in agricultural commodities. He expanded through partnerships with foreign companies looking for access to the Indonesian market, developing a reputation for integrity and avoiding the circle of cronies around then President Suharto. By the late 1980s Astra, with $2 billion in annual sales, credit lines with the world's major banks and a sterling reputation, was in a class by itself.
The company's troubles began with William Soeryadjaya's oldest son, Edward, who had founded Bank Summa in 1989 with the stated intention of dominating Indonesian banking. The bank's lending soared, much of it going to property companies Edward controlled. At the same time, he cemented the family's ties to a Muslim leader, the moderate Abdurrahman Wahid, now Indonesia's president. In 1990, he signed an agreement to set up 60 rural banks with Wahid's Nahdlatul Ulama, the largest Islamic organization in the world.
But by 1991 Edward's banking empire had begun to unravel. His father tapped into Astra's substantial credit lines to bail out the bank, pledging the family's Astra shares as collateral against Bank Summa's swelling debts. In late 1992, the government seized and liquidated Bank Summa, marking the first official bank collapse in Indonesian history. The loan collateral was seized, taking the Soeryadjayas' stake in Astra to zero from more than 74% at the end of the 1980s. Forty percent of that stake ended up in the hands of a group of Suharto associates led by Mohamad "Bob" Hasan, who managed a Suharto investment company called Nusamba.
Climb to the top
Soewandi, who had been hired by William's younger son Edwin in 1989 to help run Astra's finance department, began her climb to the top. She won Hasan's confidence by helping to manage some of his personal investments.
Astra, meanwhile, continued to rack up profits and plaudits. But that changed abruptly in 1997 with the rupiah's devaluation, which made Astra's nearly $2 billion in foreign-currency debt unpayable because its revenue was all in the sharply devalued Indonesian currency. For almost two years Soewandi worked full-time on restructuring the debt, and in mid-1999 Astra became the first major Indonesian company to sign a debt deal since the financial crunch began in 1997.
It was an achievement for which she won a good deal of praise, though critics have noted that the deal commits Astra to a strict repayment schedule that will force it to sell noncore assets in coming years if profits aren't high enough. And Trimegah Securities' Chang notes that Astra still needs to be driven by its products, not by its finances. "Rini's a finance person, she's not an automotive person," he says. "Astra is what it is today because of the vision of its founding shareholders, not because of some manager's ability to improve cash flow."
Yet while Astra's future looks assured – analysts expect the company to report profit of 800 billion rupiah ($110 million) for 1999, compared to a net loss of almost 2 trillion rupiah in 1998 – the future of Ibra's efforts to pull Indonesia out of its economic malaise is less certain.
None of this will surprise Astra CEO Soewandi, who briefly served with the agency before taking the car firm's top job. When she quit Ibra in May 1998, she complained that it was prey to "too much political interference." That has proved all too true.