Eka Tjipta Widjaja started out selling biscuits from a bicycle rickshaw in the late 1930s. He survived
wars, a revolution and a white-knuckle economic plunge to create one of Southeast Asia's largest business empires.
But then Asia
Pulp & Paper Co.,
the cornerstone of the Widjaja family empire and the 10th-largest paper
company in the world, ran into severe debt trouble in 2001. Many thought the
clan's days among Asia's corporate elite were numbered.
Creditors wanted repayment of APP's $13.9
billion debt. They accused the family of shifting hundreds of millions of
dollars from the business into offshore accounts. Indonesian regulators
seized the family-run bank, cutting off a crucial source of funds. APP's
shares were kicked off the New York Stock Exchange after their value plunged
to almost nothing. Environmentalists decried the papermaker's destruction of
Indonesian rain forests.
Two years later, however, the Widjajas
(pronounced WEE-JAI-YAHS) remain firmly in control of APP, despite being
embroiled in what experts regard as the biggest and most complex
corporate-debt workout in emerging-markets history. They have deflected
efforts to reduce their control over APP -- including a highly unusual
appeal to Indonesia's president by the U.S. and other governments -- and
they are pushing ahead with an ambitious expansion in China. Meanwhile, most
of APP's creditors, including almost every major international bank, many
pension funds and the U.S. government, for two years haven't seen a dime of
what the company owes them.
Indonesia has spent five years trying to
root out the collusion between business and government that flourished under
former President Suharto. But the Widjaja family's ability to remain at the
helm of APP illustrates how much influence business interests continue to
have on government policy. It also underscores how defenseless foreign
creditors can be in Indonesia's legal system. Judges here routinely refuse
to declare powerful local companies bankrupt, no matter how bad their
financial state.
APP officials deny that they have
siphoned money or done anything else illegal in their business dealings.
"You can be suspicious of anything. Of course, nobody's perfect,"
Indra Widjaja, the family's chief negotiator in the restructuring talks,
says in an interview. If any mistakes were made, he says they weren't
intentional.
He adds that the family is committed to
repaying its debt and promises that creditors will benefit once the company
returns to its expansionary ways. "We can grow so high. We can buy out
our competitors. That's our past record," he says.
The Indonesian government, APP's largest
single creditor, has played the most important role in the Widjajas'
resilience. It has repeatedly sided with the family against other large
creditors who have lobbied for outside scrutiny of APP's cash flow and
management.
Frustrated lenders say the debt saga also
holds a warning for Indonesia: Foreign investors may start to shun the
country if the government doesn't force APP to give its creditors a better
deal. The ambassadors to Indonesia from the U.S., Japan, Canada and eight
European countries wrote in a March letter to President Megawati
Sukarnoputri that "failure to reasonably satisfy the creditors of APP
will affect the confidence of future potential investors into
Indonesia."
Indonesia can ill afford to scare off
investors. The country already suffers from image problems in the wake of
the October bombings on the resort island of Bali and this month's terrorist
attack on the J.W. Marriott Hotel in Jakarta.
Despite the claims of favoritism, the
government agency handling the debt workout says that it hasn't been
influenced to cut the family some slack. The Indonesian Bank Restructuring
Agency, which has quasijudicial powers, says it is trying to finish up a
restructuring deal that will maintain APP as a healthy employer in the
pulp-and-paper industry in Indonesia. APP and its various subsidiaries
employ about 60,000 Indonesians.
Patriarch Eka Tjipta Widjaja emigrated to
Indonesia's island of Sulawesi from China's Fujian province at the age of
nine. A swashbuckling trader known for wearing a belt buckle that spells out
his first name, "Eka," in diamonds, Mr. Widjaja survived several
spectacular collapses along the way to becoming one of Indonesia's
wealthiest businessmen. During World War II, Japanese price controls wiped
out his palm-oil business. When Indonesia's war for independence against the
Dutch crushed his commodity-trading business in 1949, he sold family jewelry
to repay creditors and traded in his car for a bicycle. He rebuilt by
forging close ties with Indonesia's military, selling food and other
supplies to troops on remote islands in eastern Indonesia.
Today, the family's businesses extend
from India to China and range from palm oil to real estate to financial
services, as well as paper and pulp. Now 82 and living primarily in
Singapore, Mr. Widjaja has turned over day-to-day control of his businesses
to his extensive family and doesn't give interviews. His eldest son, Teguh
Ganda Widjaja, runs APP and the other pulp-and-paper businesses; Indra
Widjaja, another son, looks after financial matters.
The business empire was put in jeopardy,
though, when the family launched a major expansion during the 1990s in an
attempt to build APP into the world's biggest papermaker. The drive was
fueled by billions of dollars borrowed from private banks, pension funds and
the U.S. and other governments.
Since APP's products -- mainly writing
and tissue paper, as well as pulp -- are priced in dollars, the company was
able to continue borrowing even through the 1997 Asian financial crisis.
While many Asian companies were forced to default on their foreign debt when
their local currencies collapsed, APP benefited because its raw materials
became much cheaper, while revenue was unaffected. Crunch time came in 2001,
when a sharp drop in global pulp prices devastated cash flow and forced the
company to declare a standstill on most debt repayments.
For creditors trying to get their money
back, part of the problem is that APP hasn't presented an audited financial
statement since one released in 2000 for the 1999 calendar year. Although
some of its subsidiaries continue to report results, APP says it is no
longer required to present audited, consolidated statements because it was
delisted from the NYSE in July 2001.
But some of the financial details that
have come to light have raised creditors' suspicions about APP. In a July
2001 meeting with creditors, APP disclosed that five trading companies in
the British Virgin Islands owed APP's Indonesian subsidiaries nearly $1
billion.
At the time, APP said those companies
weren't related to the group or to the Widjaja family. But The
Wall Street Journal learned that several APP employees worked at
those companies as officers or agents. Creditors alleged, in
meetings with the company and with officials of the Indonesian Bank
Restructuring Agency, that APP never intended to collect the money, and that
the transfers were a way to keep money away from creditors. APP says it
always intended to collect the money and says it has launched legal
proceedings in Indonesia to collect.
Indra Widjaja says the episode was a
teething problem. "All this occurred because we went too fast," he
says. "The first few months are trial and error."
Also in 2001, an outside auditor found
that one of APP's Indonesian subsidiaries, Indah Kiat, had nearly $200
million on deposit with a private bank controlled by the Widjaja family in
the Cook Islands at a time when the company's finances were fast
deteriorating. Two other Singapore-listed Widjaja family companies that
aren't part of APP also placed several hundred million dollars in the same
bank, BII Bank Ltd. It later turned out that none of the money could be
withdrawn immediately because BII Bank had lent it to other Widjaja family
projects, company officials said.
Creditors charged in meetings with
officials from APP and the government restructuring agency that APP was
using the bank to hide funds from them. Indra Widjaja says Indah Kiat has
since recovered its money, and the other units will get theirs back in a few
years. Creditors to Indah Kiat, however, say they haven't received any of
those funds.
Some creditors aren't satisfied by the
company's explanations. Deutsche Bank AG, owed $193 million by APP, believes
a fair outcome to debt talks is impossible with the Widjajas running things
and the Indonesian Bank Restructuring Agency leading the way. Last August,
the German bank and France's BNP Paribas SA petitioned a court in Singapore,
APP's corporate home, to strip the family of control and appoint an
administrator to manage the company.
"The incumbent management is
probably corrupt and wants to hold on to the cash flow so more of it can
leak out," Alvin Yeo, Deutsche Bank's attorney, said in a recent court
hearing. The Widjaja family, he added, has been "treating their own
companies as family piggy banks."
The court rejected the bank's petition.
But it also said that if consensual debt restructuring remains stalled or if
what the court described as "questionable transactions" continued,
the appointment of judicial managers can't be ruled out in the future. The
court wasn't more specific. Other creditors are weighing their alternatives
-- including further legal action.
Some creditors had hoped the government
restructuring agency would force the Widjajas to make a settlement more
favorable to the creditors. Instead, the agency has consistently accepted
the family's argument that management shake-ups or closing companies could
jeopardize jobs.
The agency has signed a preliminary
agreement with APP covering the debts of its Indonesian operations, which
amount to $6.7 billion out of APP's total debt of $13.9 billion. The plan
would split the $6.7 billion into three segments. Only the first, of $1.2
billion, would be fully repaid, and that over 10 years. The rest would be
refinanced or exchanged for convertible bonds. The APP debt held by
creditors who have agreed to the plan amounts to 40% of the company's
Indonesian debt, but the plan needs to be supported by 67% to become
binding.
The Widjajas say the plan should be
implemented as soon as possible. "There's no reason for creditors to be
against this deal, unless they just want to make trouble," Indra
Widjaja says.
But some creditors believe APP can fully
repay much more debt than it will do under the plan. They wanted the
proposal to include measures that would have made it more difficult to
transfer money out of APP to other companies controlled by the family. In
addition, creditors wanted the family to put its shareholdings into a
special trust that would automatically transfer ownership to creditors if
APP defaults after the deal takes effect.
The Widjajas maintained that those plans
were contrary to Indonesian law, however, and the restructuring agency
refused to consider them. Creditors presented several Indonesian legal
experts who disagreed, but the agency wasn't persuaded.
Many creditors believe they will
eventually be forced to accept the deal, because the stance of Indonesia's
government and the lack of recourse through its legal system effectively
leaves them with little choice.
Not all APP creditors have been shut out.
The company paid Chinese banks about $700 million in the first year after
APP declared a standstill on debt payments in March 2001, APP attorney Ferry
Djongianto testified in the Deutsche Bank case. Indeed, people with
knowledge of the situation say APP has stayed current on all debt payments
to Chinese banks.
Indra Widjaja says APP can keep current
on its debt to Chinese lenders because it has cash flow from its Chinese
operations and can devote that money to repayment. There's another
incentive: In China, state-run banks have extensive authority to seize
assets in the event of a default.
In late September, APP China agreed with
the Chinese province of Yunnan to build a huge new pulp-and-paper plant for
$2 billion, according to an official directing the project for the
provincial government. The official said APP has agreed to finance 80% of
the project. APP also resumed construction recently of a planned $1.6
billion paper plant in Hainan province's Yangpu Economic Development Zone.
The cash fueling APP's expansion comes
from Indonesia's trees. APP's mill in the central Sumatra town of Perawang
gobbled up an estimated 60 million of them last year alone,
environmentalists estimate -- or an area, at about 260 square miles,
slightly larger than Tokyo.
Two decades ago, the region around that
mill contained some of Indonesia's densest rain forests. Today, broad vistas
stretch for miles across land cleared for palm-oil plantations and other
agricultural use. Habitats for the region's many endangered species, such as
the Sumatran tiger, are vanishing.
The scene is especially grim in the Tesso
Nilo reserve, a protected forest that the government has designated as
off-limits to loggers and that has twice the bio-diversity of similar areas
in the Amazon basin. Along the red-dirt roads, bare-chested laborers load
felled logs onto trucks.
Scientists from the World Wildlife Fund
estimate the forest will disappear within the next five years due to
logging. In 2002, the fund followed several trucks carrying logs from the
forest to the mill gates, and presented that evidence to the company and
forestry officials. No action was taken.
Residents of Tesso Nilo say many of the
trees cut from the protected forests nearby are sent to the APP mill, a
practice they know is illegal but continue because it pays. "I can't
stop my people," says Mohammad Hadta, a 41-year-old village elder, who
reels off the names of nine local companies he says employ locals to cut
down trees and deliver the wood to APP's mill and other mills in the area.
"If the mills stopped buying the wood, we would stop selling it."
APP says it checks the documents of every
truck that arrives at its mill; such papers show that the company has the
right to chop down trees in nearby areas. However, the company has no way of
telling whether the logs on the truck actually came from those areas, or a
protected area such as Tesso Nilo. "There is not too much we can do.
They come to us with legal documents," says Steve Shih, the mill's
senior director for forestry.
- 2003 August 15 WALL ST. JOURNAL
by Timothy Mapes
Food & Properties (AFP), controlled
by Indonesia's Widjaja family, is proposing hiving off its China commercial
property business - and placing that under a new wholly owned subsidiary,
Bund Center Investment Ltd, which it proposes to list on the Singapore
Exchange (SGX).
This, so that the group can 'build on its
position as a leading developer in premium commercial, residential and
township property developments in its selected markets' - by devoting
greater and separate attention to the two key markets of South-east Asia and
China.
AFP said yesterday the proposed demerger
will be effected through a capital reduction in the company and a
distribution in specie of all the shares in Bund Center to AFP shareholders.
Shareholders will, immediately after the
distribution, continue to hold their ordinary shares in AFP (which will
remain listed on SGX) as well as hold ordinary shares in Bund Center. This
means shareholders will be able to individually and directly participate in
the ownership of, and enjoy returns from, shares held in two separately
listed companies without any additional cash outlay.
AFP will not have any shareholding
interest in Bund Center immediately after the distribution.
The news, which was released during the
mid-day break, sent AFP shares soaring. They closed 25 cents up at 65 cents
- a gain of 62 per cent - on volumes totalling almost 12 million shares,
yesterday.
The demerger will result in AFP becoming
a South-east Asian-centric property company, focusing its resources on its
existing property businesses in Indonesia, Malaysia and Singapore. It will
also continue to engage in all its existing food businesses.
Bund Center will then be a China-centric
property company, holding just about all of AFP's property investments in
China - which comprise the Bund Center located in Shanghai and the Golden
Center located in Ningbo.
Bund Center is currently involved in
property investment, and could expand into property development in China, in
the future, AFP said yesterday.
AFP will, however, hold on to interests
in selected mixed developments located in Chengdu and Shenyang in China, as
well as land use rights to several pieces of vacant land located in Zhuhai
in China, as it intends to sell these off.
Explaining the demerger, AFP said
yesterday: 'Each geographical segment is subject to its own unique market
and competitive conditions resulting in operations that are independent and
distinct from each other.'
It believes the move will enable the
group to achieve operational independence for each business and allow the
management of each property business to better address the operational
issues and execute the distinctive strategies needed to operate more
efficiently and effectively.
'As such, the board is of the view that
the demerger will assist shareholders, the financial community and the
investing public to better appraise the value of the respective underlying
businesses and assets of the Proforma AFP Group and the Bund Center Group
and, consequently, allow for the value of such businesses and assets to be
better reflected in their respective share prices,' it said.
The demerger is subject to shareholders'
approval and various regulatory approvals and authorisations.
- 2009 September 25 BUSINESS
TIMES
