Indonesian firms make Singapore comeback

Indonesian firms make Singapore comeback
By Sara Webb
Email us your feedback at fd@bizedge.com


Indonesia's big family firms, once crippled by debt and rocked by scandals, are back in business thanks to a commodities boom and are tapping Singapore's capital markets.

But investors, some of whom were burnt by these names a decade ago, may prove wary of stumping up money for companies with Indonesian assets.

Mark Mobius, the Singapore-based emerging markets guru, said incidents such as the US$14 billion (RM47.91 billion) default by the Widjaja family's flagship Asia Pulp & Paper (APP), are a valuable lesson.

"Investors must be vigilant. APP is one example where billions were lost and even though that company was registered in Singapore there was no protection for bond and shareholders," said Mobius, who manages about US$30 billion for Templeton.

That investors may be wary has not deterred some of Indonesia's richest families from raising cash in Singapore, which is viewed as a safe haven from Indonesia's political instability and widespread corruption.

Take the Salim and Riady families, whose banks were bailed out and taken over by the Indonesian government in the Asian financial crisis.

The Salims' palm oil group Indofood Agri Resources Ltd raised S$420 million (RM951.61 million) last month in a share sale. The Riadys, who control Lippo Group, raised S$100 million last year when they listed a property trust.

Even the Widjajas -- considered pariahs by some investors and bankers following a string of financial scandals, including APP -- plan to use their Singapore-listed palm oil unit to raise funds.

The danger for investors is that while Indonesian firms may be listed in Singapore, most of their assets are in Indonesia.

Creditors who lost money on Singapore-headquartered APP were powerless to seize the firm's Indonesian assets, which had been pledged as security for their bonds, or to take control of the group, despite court battles in Singapore and Indonesia.

"The legal system in Indonesia does not work, particularly for foreign investors. Don't expect to go into an Indonesian court and get a fair trial," said Mobius.

But Singapore's desire to be the region's leading financial centre and the size of its fund-management business -- some S$720 billion -- means bankers expect to see plenty more Indonesian fundraising in the city-state.

"Why Singapore?" said Erwan Teguh Teh, analyst at Danareksa in Jakarta. "You have more informed investors, the tax structure for investors is better," and stocks may be more actively traded.

And ethnic Chinese Indonesians also feel comfortable doing business in predominantly Chinese Singapore.

They are key players in the property market -- one of the Widjajas paid over S$50 million for land in Singapore's prime residential district -- and big business for the private banks.

One third of Singapore's high net worth investors -- those with net financial assets of over US$1 million -- are of Indonesian origin, Merrill Lynch and Capgemini said in a report, adding that of these 18,000 have total assets of US$87 billion.

Perth-based Straits Asia Resources, which owns a coal mine in Kalimantan, is among the Indonesian plays that turned to Singapore for funding or for a higher regional profile.

Bankers said another Indonesian coal-miner, Adaro -- the subject of a bitter ownership dispute -- may also list in Singapore.

But some deals had a lukewarm reception.

Lippo was forced to sell shares in its First Real Estate Investment Trust in December at the lower end of the price range.

In February 2006, the group's Indonesian property arm Lippo Karawaci raised US$250 million in a bond sale, saying the proceeds would mainly be used to refinance existing debt.

A few months later it took investors by surprise when it paid US$223 million for a plot of land in Singapore -- prompting credit rating firm Moody's to put Lippo Karawaci's rating under review for possible downgrade.

The Widjajas' palm oil firm, Golden Agri-Resources, may struggle with this year's planned bond issue or structured loan.

Credit rating agency Moody's said Golden Agri's "complicated family-controlled organisational structure could give rise to the risk of funds being channelled to support affiliated companies."

Losses at Golden Agri and other Widjaja firms incurred through derivatives contracts and other controversial deals, angered many investors at the time.

But as Templeton's Mobius puts it: "Not only investment bankers, but all investors tend to have short memories." -- Reuters