Important asset sale

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.