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."