Joe Cochrane, SK Zainuddin, Albertus Weldison Nonto
Fortune has favored Indonesia’s business barons and captains of industry these past 12 months. Rising commodity prices, strong consumer demand and a raging stock market have combined to push the net worth of the GlobeAsia 150 Richest to new record levels. And after three years, we also have a new number 1.
Coal, palm oil, property, consumer goods. Indonesia’s rich natural resources and fast-growing consumer market have been the backbone for one of the sharpest spikes in the net worth of the super-rich since we started compiling the GlobeAsia 150 Richest Indonesians list in 2007.
In the past year, record high global commodity prices have translated into record earnings for those tycoons who have coal mines and vast palm oil plantations. In fact, just about any businessman of stature these days is eyeing a coal mine if he does not have one already, or is looking to expand production. It is no surprise that of the 21 billionaires on this year’s list, nine have build their fortunes through ownership of coal mines.
Two of the new entrants to this year’s list, Samin Tan, who owns Borneo Lumbung Energy and Metal, and Agus Lasmono, majority shareholder of Indika Energy, both rose to fame and fortune by acquiring coal mines.
This year’s new number one, Eka Tjipta Widjaya, the patriarch of the Sinar Mas group, knocked Budi Hartono of the Djarum Group off his perch primarily because of the group’s massive expansion in palm oil. We estimate that Sinar Mas has over one million hectares of palm oil
Fauzi Ichsan, senior economist for Standard Chartered in Jakarta, says “it’s a very simple ex- planation” why Indonesia’s rich are getting richer.
“Commodities and asset inflation,” he says. “In the last 18 months, commodity prices have more than doubled. Oil has gone from $35 a bar- rel in March 2009 – today it is $100 a barrel.
“The rise in oil prices also pushed up the pric- es of other commodities prices, especially energy commodities like gas, coal and palm oil. On top of that, we’ve seen a big equity market rally over the last 18 months,” he says.
“Basically the gap between the rich and poor is widening because of asset and commodity inflation. Even if you are a farmer and own your own rice field, you’re OK because food prices have gone up and the price of your land has gone up. We’re not talking about new jobs or inventing new stuff in Indonesia. This is not new.”
Indeed, Indonesia has for a while been among the world’s top producers and exporters of numer- ous commodities, including coal and palm oil. And globally, the past 12 months has seen more of the same.
“Indonesia’s wealth is directly tied into com- modities and the rise in commodity prices in the past year, driven by money printing and growing demand from emerging markets, particularly China and India, has seen a material improve- ment in Indonesia’s overall wealth,” said Nick Cashmore, head of securities at broker CLSA Indonesia.
“Wealth has expanded because those owning assets have seen their net worth expand as asset prices have risen. It’s a simple story,” he says. “Deals have been done, work expended but at the end of the day global loose monetary prices continue to drive asset prices higher and thereby increase the wealth of the owners of those assets.
“The numbers are staggering: the share prices of coal miners PT Banyan Resources, PT Bumi Resources, and PT Adaro Indonesia increased by 179.3 percent, 69 percent, and 10 percent, respec- tively, between May 2010 and April 2011, making them among the JCI’s top 15 performing stocks during that period.”
But nothing is etched in stone – or coal for that matter. “Just as the tide has risen, were com- modities prices to again fall, so Indonesia’s tide would subside,” Cashmore reflects. “The country remains beholden to directional movements in commodity prices. Coal mining is the latest fash- ionable investment trend and every aspirational taipan must have a coal strategy.”
Of course, there is more to life than coal and palm oil. Indonesia’s economic upswing has been followed by growing consumer spending, as millions more Indonesians have more money in their pockets and are joining the growing ranks of the middle class.
“The commodities story is slightly less com- pelling than the consumption story,” says Tai Hui, Southeast Asia head of research for Standard Chartered Global Research in Singapore.
Indonesia’s economy grew at an impressive 6.5% in the first quarter of 2011 compared to the same period in the previous year on the back of consumer spending and investment.
“I would say that (retail and consumer goods players) made good money,” says Erwan Teguh Teh, head of research at CIMB in Jakarta.
The retail sales index is up quite substantially, and if we look at some of the deals done over the last 12 months, the valuations are lucrative. Matahari and Alfa Mart, for example.
“And they are reinvesting. If you follow some of the listed retailers, they are expanding. Most of them are expanding by 10% to 15% new space every year. That’s a lot. Depending on inflation, they could grow 15% to 20% each year overall.”
Among the top retail and consumer goods players are Anthoni Salim, ranked number 3, Peter Sondakh, ranked 9th; William Katuari, ranked 13th; Mochtar Riady, ranked 17th; and Chairul Tanjung, number 23; and Sjamsul Nursalim, number 29. Another sector in the portfolios of Indonesia’s richest is property – and with good reason.
The performance of listed property companies on the JCI improved by 2.6% between June 2010 and May 2011. The country’s second-largest prop- erty firm, PT Bakrieland Development, controlled by the family of Aburizal Bak- rie, who is ranked 5, announced in May that it expects its 2011 net profits to rise by 30%.
However, while share prices and demand are both going up, that doesn’t necessarily mean the same applies to property values. “I don’t think the value is going up significantly,” states Edwin Sinaga, president director of brokerage firm Financorporindo Nusa. “I think it’s about 10% to 20%.”
What will be the hot new sectors for 2012 and beyond? Hui of Standard Char- tered says that sectors linked to consumer demand are a sure bet, in particular tele- communications.
“The way the income level in Indone- sia is now … we are moving away from the bare necessities of life to something more interesting. So you will see a rapid growth in telecommunications; we’re moving away from motorbikes to cars. That change in consumer behavior all helps facilitate income growth of those businesses,” he said.
But will this growth alone help Indo- nesia itself, rather than just making tele- coms and car manufacturers better off?
Some don’t think so, given the country’s continuing dependence on produc- ing raw materials such as coal and palm oil.
“The value-add to the economy is not apparent,” Ichsan concludes. You can’t compare Indonesia’s list of the richest with prominent figures on the US rich list like Steve Jobs of Apple or Bill Gates of Microsoft. They really change people’s lifestyles with their inventions. And the rich list in Indonesia – we are riding on global growth.”
A man for whom money has grown on trees
Indonesia’s richest man, Eka Tjipta Widjaja, has built a fortune amounting to $12 billion over the past few years on the back of rising commodity prices as he and his family made huge investments in property, palm oil and pulp and paper. The patriarch of the Sinar Mas Group is semi-retired but his four sons continue to drive the family’s vast business empire.
For a group that once faced $13 billion in debt and was forced to relinquish its hold on Bank Internasional Indonesia, the Sinar Mas Group has made a remarkable comeback over the past decade. Not only has the group rebuilt its corporate empire, it has once again emerged as Indonesia’s richest family-owned business group.
Although founder Eka Tjipta Widjaja is now semi-retired, the group is continuing its rapid expansion under his four sons, who each look after a major component of the sprawling business empire. These are palm oil, pulp and paper, property, banking, energy and infrastructure and, more recently, mining. With global commodity prices at an all-time high, the group is reaping the rewards of its earlier decision to invest significantly in palm oil plantations.
Today, Sinar Mas is arguably the biggest player in the industry, with an estimated one million hectares under its control, of which 400,000 hectares is in production and another 400,000 hectares is in various stages of growth and planting. As a result, the group derives the bulk of its wealth from agribusiness, although only a portion of their palm oil assets are held under Jakarta-listed Golden-Agri Resources, run by Franky Widjaja.
Sources told GlobeAsia that the group is also working on acquiring an additional 500,000 hectares across Indonesia, including in Papua. If they do manage to achieve such scale, they will be unrivaled. And despite recent criticism by environmental groups such as Greenpeace over alleged forest destruction, Sinar Mas seems undeterred in pursuing a single-minded goal.
Apart from palm oil, the company has pushed aggressively over the past few years into property, food, mining and natural resources. This is on top of their on-going operations in pulp and paper under Singapore-listed Asia Pulp & Paper (APP). As with many Indonesian conglomerates, Sinar Mas’ non-listed businesses are as big if not bigger than their listed corporate assets.
In property, for example, the group has built a portfolio that spans Indonesia, Singapore and China. It is a major property owner in Shanghai, where it owns the Bund Center and a number of other choice properties.