Important asset sale

The Indonesian Bank Restructuring Agency's sale of 24 oil palm plantations formerly owned by the Salim Group for Rp 3.6 trillion (US$370 million) to Malaysia's Kumpulan Guthrie Bhd on Monday should be hailed for several reasons.

First of all, the sale, concluded through an open and competitive bid, could become a confidence-building deal for the powerful IBRA, which often has been criticized for questionable transactions, both in debt restructuring deals and asset disposals.

The sale will enable IBRA to achieve the Rp 19 trillion revenue target it has been assigned for the current April- December 2000 fiscal year. In the past week, IBRA raised almost $250 million from the sales of the Mosquito Coil Group, food seasoning manufacturer Indomiwon, Indomilk and an oleochemicals group, which were all part of the assets pledged by the Salim Group to IBRA.

The latest deal also could bolster investor confidence in the huge pool of assets (about 108 companies) pledged by the Salim Group to settle its Rp 52 trillion debt to the government. The recent legal wrangling over the government's demand for additional assets from the Salim Group on top of those ceded under a master settlement and acquisition agreement signed in late 1998, had raised some doubts about the legal status of the already pledged assets.

That the sale of 260,000 hectares of oil palm plantations in several provinces in Sumatra, Kalimantan and Sulawesi took place at a time when international crude palm oil prices are near eight-year lows, or half as high as last year's prices, indicates that Kumpulan Guthrie, a company controlled by the investment arm of the Malaysian government, Permodalan Nasional Bhd, is strongly committed to long-term investment in Indonesia.

The business outlook for Guthrie, which is a large palm oil company in Malaysia, is similar to that of Singapore's automobile distributor Cycle and Carriage Ltd., the company that acquired for $560 million IBRA's shares in Astra International, Indonesia's largest automobile company. The Singapore company purchased these shares in March, when the domestic car market had just begun to recover from its 1998 slump.

Needless to say, Guthrie's investment in Indonesia, the world's second largest palm oil producer after Malaysia, is a strategic move to capitalize on low-cost labor and sidestep the biggest barrier to plantation expansion in Malaysia -- a lack of suitable land. But for Indonesia, Guthrie's entry is a synergic tie-up with local plantations, which can benefit from the transfer of managerial expertise and planting technology from Malaysia.

The spate of asset sales by IBRA over the past month clearly proves that transparency, clear bidding rules and well-arranged packages of assets are the keys to asset disposal, which is crucial to pushing economic recovery.

The faster the approximately Rp 600 trillion worth of assets currently managed or controlled by IBRA are sold to private investors, the better the business prospects of these assets. Certainly, IBRA may not always get the highest price for these assets, especially given the current situation in the country, which continues to be plagued by a high degree of political uncertainty.

IBRA should, however, realize that the quality of the assets sold this year will improve markedly next year as a result of better management and restructuring by the new owners or investors. This improved business performance will contribute to strengthening the country's economic recovery, which in turn will increase the value of the assets that have not yet been sold.

The most important thing for the government to do, especially in so far as the 24 plantations sold to Kumpulan Guthrie are concerned, is to protect the estates from arbitrary claims by local residents. Legal certainty in property ownership is surely the most important factor for businesspeople in determining where they will invest.