Kanindo takeover draws criticism and scepticism

Kanindo takeover draws criticism and scepticism

By Hidayat Jati

JAKARTA (JP): The takeover of the troubled Kanindotex group of
textile companies by a well-connected consortium drew criticism
and skepticism from various analysts yesterday.

"The triumph of PT Apac Century Corporation in taking over a
controlling stake of Kanindotex and its management under a scheme
offering a subsidized interest rate proves that crony capitalism
is alive and well in the Indonesian economy," Didik J. Rachbini,
an economist associated with the National Development Planning
Board, told The Jakarta Post by phone yesterday.

Didik was commenting on the final agreement regarding the
takeover of Kanindotex, signed on Tuesday night after months of
delay. The deal was a clear victory for Apac Century, which is
headed by President Soeharto's second son Bambang Trihatmodjo.

Bambang is the chairman of the Bimantara Group as well as
treasurer of Golkar, the ruling political group.

Apac Century secured 90 percent of Kanindotex's shares as well
as its management, completely ejecting the Indonesian Batik
Cooperatives Federation (GKBI) from Kanidotex's management in
spite of a four-year contract awarded by the Finance Ministry
last year.

Kanindotex, which owns three mills in Central Java which
employ more than 10,000 workers, had defaulted on Rp 1.3 trillion
(US$585 million) in loans from state-owned Bank Bumi Daya (BBD)
and Bank Pembangunan Indonesia (Bapindo).

The consortium also won an extraordinarily low 11 percent
annual interest rate from Kanindotex's creditors -- the current
market rate is about 20 percent per annum -- under which to repay
the bulk of the textile group's loans within eight years.

The 11 percent rate represented a compromise, since Bambang
originally asked for a two percent annual rate for the first four
years and four percent for the remaining period.

Inefficient

"What we are seeing in this case is that the possession of an
inefficient project has shifted from one politically-related
party to another," Didik said.

Kanindotex was previously owned by businessman Robby Tjahjadi,
a known Golkar supporter.

Echoing the conclusion of last year's parliamentary
investigation, Didik said yesterday that Robby had marked up
Kanindotex's real worth to get a bigger loan.

Despite such claims, Robby has never been charged by the
authorities.

"So our only hope is that Bambang's consortium will be able to
honor Kanindotex's debts, which were granted to Robby by
neglecting normal banking procedures in the first place," he
said.

Rizal Ramli, a economist based with the Econit think-tank,
warned that the government, or Kanindotex's creditors, would not
be able to supervise the financial development of the textile
group since neither BBD nor Bapindo had managed to secure a
controlling interest in Kanindotex.

Bambang's consortium had precluded any possible scrutiny or
intervention by outside parties, he said.

Benny Sutrisno, an Apac Century executive who is now the
president of Kanindotex, confirmed on Tuesday that the final
takeover agreement had dropped a government's suggestion which
might have facilitated a management takeover by BBD and Bapindo
in the event that the consortium failed to honor its debts during
the first nine months.

Benny said that the suggestion was originally made by Minister
of Finance Mar'ie Muhammad.

"How can we be sure that Bambang's consortium will honor its
obligations and how can we check that Robby Tjahjadi is not
behind them?," Rizal asked yesterday in an interview with the
Post.

Rizal revealed his suspicions to the press in February that
Bambang and his partners in Apac Century were acting only as
Robby's proxies in his efforts to regain control of Kanindotex.

Robby was not available for comment yesterday.

Although the final takeover agreement states that Robby agrees
to surrender all of his shares, management and obligations at
Kanindo to the consortium, none of Bambang's team members has
openly challenged Rizal's suspicion.

Benny Sutrisno, for his part, has repeatedly stated that the
consortium will succeed since both he himself and his partners
are experienced textile businessmen.

In the meantime, economist Didik Rachbini concluded that the
Kanindotex takeover represented a victory for parties who wish to
maintain a tight relationship between business and politics in
Indonesia, at the expense of efficiency and fairness.

"This is another defeat for our reform-minded officials," he
said.