Salim Group in survival talks with IBRA

Salim Group in survival talks with IBRA

SINGAPORE (Dow Jones): Indonesia's once-powerful Salim Group
may have to shrink in size in order to survive.

A Salim executive said over the weekend that the conglomerate
has proposed giving Jakarta banking authorities assets and shares
in a range of group units as part of a solution to problems at
its flagship PT Bank Central Asia.

The executive, who declined to be named, said that the highly
diversified company -- whose activities include food, finance,
flour milling, cement, palm oil, property and mining -- has
submitted a proposal to senior Indonesian officials under which a
set of Salim assets and shares would be handed over to the newly
formed Asset Management Unit of the Indonesian Bank Restructuring
Agency.

No details of the proposal were available. Anthony Salim,
group president and chief executive officer, declined to comment.

In Jakarta on Friday, the central bank governor, Syahril
Sabirin, said monetary authorities and the Salim Group are
negotiating to reach a deal by a Sept. 21 deadline. An official
of IBRA, as the restructuring agency is known, says Anthony is
"negotiating in extremely good faith."

People with knowledge of the Salim proposal say it includes a
range of listed and unlisted companies, inside and outside
Indonesia. If Salim and Indonesian authorities are able to reach
an agreement on the proposal, the conglomerate will survive, but
shrink significantly from its current size.

Salim, made up of hundreds of companies operating mostly in
Asia, has been badly hit in the past year by the Asian economic
crisis and the sharp fall of the Indonesian rupiah.

The financial turmoil has already lowered the value of its
listed companies. In May, the group suffered another blow with
the resignation of Indonesia's President Soeharto, a longtime
friend and associate of Salim Chairman Liem Sioe Liong, Anthony's
father.

During the May 14 riots that ravaged parts of Jakarta, Liem's
home was destroyed by an organized group of looters. (Liem has
been in the U.S. since before May.) In the days after Soeharto
stepped down, BCA, as the Salim Group's unlisted bank is known,
was hit by a massive run by depositors that forced it to get huge
liquidity injections from Indonesian authorities.

A Jakarta executive familiar with the group estimates that
market capitalization of its listed companies has fallen more
than 50 percent since mid-1997, from about $10 billion to less
than $5 billion at present.

A Salim executive puts market capitalization of one of the
group's main companies, Jakarta-listed PT Indofood Sukses Makmur,
at about $300 million now, compared with more than US$3 billion
in mid-1997.

In the early 1990s, economists and analysts estimated that
Salim accounted for about 5 percent of Indonesia's gross domestic
product.

It controlled the biggest privately-owned bank, made more than
half the country's cement, and produced more instant noodles than
any other company. (Last year, Indofood Sukses Makmur produced
more than seven billion packets.)

The Salim Group has always had plenty of critics stemming from
the link between Liem, now in his early 80s, and the 77-year-old
Soeharto.

In 1985, in what was widely seen as a bailout, the government
injected $330 million into PT Indocement Tunggal Prakarsa, which
was tottering after expanding its capacity beyond Indonesia's
needs.

In a rare interview, Anthony told The Asian Wall Street
Journal in 1994 that the government reaped a good return from the
Indocement injection, and he likened the rescue to the U.S.
bailout of Chrysler Corp during the 1980s.

"Chrysler was strategic for the U.S. and Indocement was
strategic for Indonesia," he said.

With its main companies loaded with debt and Indonesia's
political picture having changed dramatically, Salim's strategy
now is just to concentrate on surviving its current troubles.

"The group has taken big whacks and is really down, but I
don't think they should be counted out," says a Singapore-based
banker. "(Anthony) will work very hard to still be in business in
Indonesia, even though he can't be a big player any more."