Salim group urged not to shift assets overseas

JAKARTA (JP): The Econit Advisory Group has appealed to the Salim Group to cancel its plan to inject its Indofood Sukses Makmur assets into the group's Singapore-based subsidiary, saying that the move could harm the investment climate in Indonesia.

On Saturday, the research group's managing director, Arif Arryman, said the asset injection into the Singaporean company would give the impression that the business and political climate in Indonesia was no longer secure and would discourage investors.

"Salim Group, as the largest business group in the country, has been a model for other local conglomerates. The group's sudden move to relocate its holding company to Singapore could make the already fragile climate in the country's investments more jittery," he said.

"It would encourage other conglomerates to follow the group's lead to relocate their holding companies overseas, thus further widening the current account deficit. It would be a serious threat to the nation's economic stability."

PT Indocement Tunggal Prakarsa, 60 percent owned by the Salim Group, 25 percent by the government and 15 percent by the public, is proposing a spin-off and sale of its 50.1 percent share in PT Indofood.

Indocement, under the proposed spin-off, would give most of its Indofood shares to the existing shareholders as a special dividend and sell the remainder to the Sampoerna Family, which at present, already has a 5.63 percent in the food giant.

The move will be followed with the sale of Indofood's 50.1 percent shares to QAF, a listed company in Singapore.

QAF, 70 percent owned by the Salim Group, has proposed to acquire 50.1 percent of Indofood through the acquisition of Indofood shares held by the Sampoerna Family and Indofood shares presently held by Salim Group and Indofood shares that Salim Group would receive under the proposed special dividend.

The Singapore firm, which is expected to issue rights shares to finance the deal worth up to Rp 4.6 trillion (around US$1.9 billion) will become the holding company of Indofood, replacing Indocement.

Anthony Salim, the chief executive officer of the Salim Group -- which is also the majority shareholder in Indocement -- said that the restructuring plan was made partly to give Indofood more exposure to international players.

Arif said Indofood's acquisition would be a great loss to the Indonesian government.

The government, with its 25.7 percent stake in Indocement, indirectly owns 12.89 percent in Indofood at present. But if the company went ahead with the restructuring plan, it would automatically lose its stake in the food giant, which last year contributed 70 percent to Indocement's revenues, he said.

He said the Salim Group's plan to inject Indofood's assets into the Singaporean firm was regrettable, given the government's strong support to the business group since its early years.

"Despite the group's highly professional business operation, they would not have gotten to their position now without the many facilities and protections given by the government," he said.

PT Bogasari Floor Mill, one of Indofood profitable division, has, for example, enjoyed exclusive rights from the government to process wheat imported by the National Logistics Agency, the only institution allowed to import the wheat.

Arif said that instead of relocating to Singapore, Indofood could strengthen its capital by listing the company on the stock market in Singapore.

"The Singaporean company should be part of Indofood, not the other way around," he said. Indofood, whose market capitalization reached $6 billion and a net profit of $206 million last year, could just as easily buy QAF, whose market capitalization only reached $567.5 million and net profit reached $8.6 million in the same period.

Kwik supports

Kwik Kian Gie, an outspoken economist, said he saw nothing wrong with the Salim Group's internal acquisition plan.

"This time, I agree with Anthony Salim, who says that the restructuring is to expose Indofood to the international market," said Kwik, who is often very critical of Indonesia's business conglomerates.

He said that the injection of Indofood's assets to the Singaporean company was not a capital flight and was not an indication of the Salim Group's negative feeling on the country's business climate.

Kwik said many economists believed that with the shifting of the holding company to Singapore, the Salim Group would be free from any risk "if something happens to Indonesia".

"But I don't agree with this ... I think if there is political change in Indonesia, Indofood can still be rocked because it is incorporated here," he told The Jakarta Post.

Indonesia had long welcomed foreign direct investments, whose headquarters are notably located overseas, he said.

Kwik said if multinational companies could invest in Indonesia and maintained their headquarters and holding companies overseas, why not the Salim Group.

"The Salim Group's business operations have long been international in scale. And like other multinational corporations, I think it is just logical for Salim to choose the right base for its foodstuff core business, to cover all Asian markets," he said.

Kwik said that the opposition to the Salim Group's move was a matter of nationalism. "But is it proper to prioritize nationalism in business in the current era of globalization?," he asked. (das/rid)