Bakrie expands without political favors
JAKARTA (JP): Spanning two generations, publicly-listed diversified firm PT Bakrie & Brothers is continually expanding its three core businesses. And all without having to seek or wield political clout.
"None of our business is related to politics," said the company's president, Tanri Abeng. "We enter only market-oriented businesses, and our businesses are straight forward, not related to any political powerhouse."
To illustrate his point, Tanri said Bakrie & Brothers used to be involved in coffee trading, but abandoned its ventures because the government introduced a quota system on coffee trading.
"We don't want our businesses to depend largely on government rulings... We want our businesses sterilized from government intervention. That's why, we do not enter the construction sector, especially areas related to government projects," he said in a recent interview with The Jakarta Post.
Currently, Bakrie & Brothers focuses on three core businesses: telecommunications, plantations and infrastructure-related industries. It also has a number of investments in the chemical and power generation sectors.
However the company's chief commissioner, Aburizal Bakrie (who is generally called Ical), holds the political position of chairman of the Indonesian Chamber of Commerce and Industry (Kadin).
"That's Ical's business. It has nothing to do with Bakrie & Brothers," Tanri said. "I want to make it clear here that no single business at Bakrie & Brothers is generated through Kadin."
He acknowledged, however, that Bakrie & Brothers sometimes helps finance Kadin's activities. "That's because we consider Kadin an important institution to strengthen local businesses. That's part of our contribution to the business community."
Founded in 1942 as a tiny trading company, Bakrie & Brothers survived a number of difficult eras: the Japanese occupation from 1942 to 1945, the Dutch return and ensuing clashes with the newly established Republic of Indonesia from 1945 to 1949 and the difficult economic circumstances during the 1950s and 1960s.
"Not many firms established before Indonesian independence (1945) have survived and continued to grow until now," Tanri said.
Bakrie & Brothers has experienced rapid growth especially during the so-called New Order government under President Soeharto, which started in the latter half of the 1960s.
"A business should follow the development of the market. And Bakrie has been riding on the economic development of the New Order," he said.
Ten times
In terms of economic scale, Bakrie & Brothers has undergone monumental growth, expanding almost 10 times during the last five years, after it entered the capital market in late 1989.
It may be a blessing for Bakrie & Brothers that Indonesia started to seriously develop the local capital market in the second half of the 1980s.
The capital market has really helped Bakrie & Brothers and other companies. Many experienced rapid growth after they raised funds through the capital market as they had a better capital structure after going public.
"Whatever the reason, funding is very important for a company to grow. Relying on banks for a company's funding is risky, especially when business is not good and the company is unhealthy," Tanri said.
He explained that going public has helped his company improve the structure of its capital. Bakrie & Brothers' debt-to-equity ratio, which used to exceed four to one before public flotation, now stands at a healthy level of one to one.
During the last five years, Bakrie & Brothers experienced tremendous growth in terms of assets, market capitalization, turnover and net profits.
Total assets increased from US$168 million in 1991 to $180 million in 1992, $346 million in 1993, $1.17 billion in 1994 and $1.4 billion last year.
The sharp increase in total assets in 1994 resulted from the issuance of 189.5 million rights shares to the public in July of that year.
Market capitalization increased from $36 million in 1991 to $58 million in 1992, $162 million in 1993, $754 million in 1994 and $871 million last year.
The company's turnover rose from $83 million in 1991 to $104 million in 1992, $147 million in 1993, $339 million in 1994 and $547 million last year.
Net profits fluctuated from $4 million in 1991 to $2 million in 1992 before recovering to $12 million in 1993, $47 million in 1994 and $52 million last year.
"So, it is a spectacular development and growth during the last five years," Tanri said, adding that Bakrie & Brothers has also been growing and developing through strategic alliances with its partners.
"Through alliances, our weaknesses can be covered by our strategic partners. Like most companies in Indonesia, Bakrie has limitations in funding, technology, human resources and market access," Tanri said.
He explained that Bakrie & Brothers builds alliances with international firms as "strategic" shareholders in the company, and others with which Bakrie & Brothers forms joint ventures.
The strategic shareholders include the American International Group of the United States and Japanese firms Itochu Corp., Mitsui & Co., Mitsubishi Oil and NEC Corporation.
The joint venture partners are PTT Telecom Netherland and PT Telkom Indonesia in the telecommunications ventures, Transfield Corporate for project management, Freeport McMoRan and BHP Mineral in mining ventures, Kawasaki Steel in a steel pipes venture, Mitsubishi Chemical in a chemicals venture, and Entergy, Southern Electric and Tomen in power generation ventures.
In investment ventures, Tanri said Bakrie & Brothers takes either a majority, equal or minority interest depending on the specific circumstances.
When Bakrie & Brothers has the capital and is leading the management and technology of a specific venture, it will take the majority interest in the venture. Meanwhile, for sectors in which Bakrie & Brothers' capacity is limited, it tends to take a minority interest in the venture.
The sectors in which Bakrie & Brothers has the capacity to manage include telecommunications, plantations -- especially palm oil and rubber plantations -- and infrastructure-related industries, especially the steel piping industry.
"In the plantations, we have a basic capacity. So, what we need is to do is strengthen our capacity with new technology. In the steel industry, especially in piping, we are leading. We entered this business a long time ago, and Bakrie is now well known for its piping business," Tanri said.
In Telecommunications, Bakrie & Brothers controls 97 percent of PT Bakrie Communications Corporation, 100 percent of PT Multi Kontrol Nusantara, 70 percent of PT Bakrie Electronics Company, 55 percent of PT Radio Telepon Indonesia and 74.1 percent of Link Telecommunication Group Pty Ltd. in Australia.
In the plantation industry, Bakrie & Brothers owns 52.5 percent of the shares in publicly listed PT Bakrie Sumatra Plantations, 95 percent of PT Bakrie Pasaman Plantations, 100 percent of PT Agrowiyana, 99 percent of the rubber trading firm Lewis & Peat Ltd. of Britain, 100 percent of both of Lewis & Peat Pte Ltd. of Singapore and Lewis & Peat Rubber Inc. of the United States.
In infrastructure-related industries, Bakrie & Brothers holds 99 percent of PT Bakrie Pipe Industries, 70 percent of PT Bakrie harper Corporation, 37 percent of PT Seamless Pipe Indonesia Jaya, 51 percent of PT Trans Bakrie, 100 percent of PT Bakrie Corrugated Metal Industry, 100 percent of PT Bakrie Tosanjaya, 50 percent of PT Braja Mukti Cakra and 100 percent of PT Bakrie Building Industries.
Investment
Bakrie & Brothers has also made "strategic" investments in a number of sectors outside its three core businesses, especially in the chemical industry, mining and power generation.
It maintains a 20 percent stake in PT Bakrie Kasei Corporation, 49 percent in PT Indocoopper Investama Corporation, 20 percent in PT Arutmin Indonesia, 20 percent in PT Bakrie Kasei PET and 100 percent in PT Bakrie Power Corporation.
Tanri explained that the strategy to develop its core businesses is by expanding, especially the telecommunications sector, into overseas markets and by strengthening into downstream and upstream stages, especially for the plantation and infrastructure sectors.
Like other big businesses in developing countries, Bakrie & Brothers is undergoing a conglomeration process at a time when conglomeration is an anti-trend in developed countries.
To accommodate its conglomeration process, Tanri said, he had developed a decentralized management system, in which each member of the board of directors is responsible for one line of the businesses.
"In terms of management, Bakrie is just like a multinational company. As our businesses are very diversified, we manage our divisions in the same way multinationals manage theirs," Tanri said.
An analyst with a foreign securities firm acknowledged that Bakrie & Brothers' strong management team serves as a positive factor in attracting equity investors to invest in Bakrie & Brothers.
However, the analyst said the company's diversified businesses have discouraged investors as well as analysts to analyze its performance.
"I think people still look into its telecoms division, it remains the most lucrative in the long term. Everywhere telecoms shares are sought after," the analyst said.
As for the plantations sector, it is very cyclical in nature as many commodities are, the analyst said. "When its market has reached maturity, it will not perform well."
He noted that Bakrie & Brothers' infrastructure division would not perform well either, especially if it targets the oil and gas industry. He suggested that it would be better off focusing on the non-oil and gas sector, which still promises better growth.
"I think Bakrie, in general, is good. However, for such a diversified group, investors tend to undervalue it because its characteristics are difficult to understand," the analyst said.
He suggested that Bakrie & Brothers be more focused on a specific sector so that it would be easier for investors and analysts to cover and understand.
Restructuring
Sharing the analyst's view, Tanri said his company is currently hiring a consultancy firm to conduct a study and sound out possibilities for focusing its range of businesses.
When it is considered feasible, it is possible that the company will restructure the capital framework in each line of its businesses. It is also possible that Bakrie & Brothers will become a pure holding company, with special holdings in each line of its businesses, Tanri added.
Those special holdings -- Bakrie Communications Corporation, Bakrie Pipe Industries and Bakrie Sumatra Plantation -- can raise funds individually from the public through initial public offerings. Sumatra Plantation has already done it.
Therefore, Tanri said, shareholders as well as investors can enter into special holdings. Those who like buying plantation shares can focus on Bakrie Sumatra Plantation, those who love telecommunications shares can buy only Bakrie Communication Corporation and those who prefer steel shares can buy Bakrie Pipe Industries.
"We are still looking at the possibility of deconglomeration. However, our business strategy will be the same, only the structure might be changed to satisfy the market," Tanri said. (rid)