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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek

APRIL 7, 2000 VOL. 26 NO. 13

Anastasia Vrachnos for Asiaweek
Eng says his company will leave Astra alone for now, but expect the new owners to sell at least some of the sprawling company.

The Winner Is . . .
Singapore's Cycle & Carriage takes Astra, but the saga is only starting

Table talk at the victory meal must have sounded like war stories from a group of battle-scarred veterans. Executives of PT Astra International were celebrating at a posh Jakarta restaurant with representatives from a Singapore-dominated consortium that had just paid $506 million for a controlling stake in their company. Perhaps the conversation dwelled on the torturous path of negotiations before the sale, or the consequences had the outcome been different.

In the end, however, there may not have been time for stories. The sale of 38.4% of Astra to a group led by Cycle & Carriage, a Singaporean auto and motor distributor, was heartening news for many of the principals. Equally, however, it represents merely the end of an early chapter in the continuing story of Indonesia's economic revival.

For Cycle & Carriage, the purchase is an opportunity to remake itself after losing a critical piece of business less than four months ago. For Astra, considered one of Indonesia's best-run companies, it means the automaker can begin to come to grips with more than $400 million in debt coming due in the next three years. And for the Indonesian Bank Restructuring Agency (IBRA), the government department assigned the job of rehabilitating the nation's banks and finding buyers for seized assets like the Astra stake, it is a grand beginning - but barely a start - to selling an estimated $30 billion worth of stock and property.


COVER: Asia's Dotcom Shakeout
Internet mania continues, but many of the region's Web start-ups will have short, unhappy lives
Privacy: Online advertisers know (almost) everything about you
Valuations: How to price Internet stocks
Cutting Edge: A microchip helps a paralyzed man walk

Editorial: Alliances Asia needs to avoid a new Cold War
Editorial: Why even Japanese should learn the language

South Asia: Bill Clinton's trip signals a move closer to India
Kashmir: Why the insurgency is stronger than ever
Business: Forging high-technology connections in Hyderabad
Viewpoint: An American role in mediating on Kashmir
Malaysia: The fading of Tengku Razaleigh Hamzah
Taiwan: The DPP struggles to govern, the KMT to reform
Extended Interview: Taipei's influential mayor on the Kuomintang


Elections: They are getting fairer and cleaner. But the main challenge is still eliminating money politics
Rerun: Thailand finds fraud and orders new polls
Fair Polls: Two election watchdogs share their expertise

Health: Malaria - the deadly scourge returns with a vengeance
Books: An overseas Vietnamese in search of his identity
Soldier's Story: A Japanese veteran lives with his troubled past
People: Ally McBeal bothers Singapore
Newsmakers: Restive Thai generals

Astra: The sale to Cycle & Carriage is just the beginning
IPO Watch
Grading a South Korean credit-watcher
Hyundai: The patriarch settles the Chung family feud
Business Buzz: Speculation that the ringgit soon may be de-pegged
Investing: An Internet strategy beyond portals

The deal is not the blockbuster that the Singapore government had been hoping for since the end of February when Singapore Telecommunications lost its bid for Hong Kong's once-dominant phone company, HKT. The lead player in the new consortium is a 100-year-old company founded in Malaysia that counts Jardine Strategic Holdings as its dominant stockholder, and which is not aligned closely to the government. Cycle & Carriage will own 23% of Astra. The Government of Singapore Investment Corp., which is the city-state's vehicle for passive investments, has a small piece of the deal and probably only a few percent of Astra.

Cycle & Carriage received a blow in December when DaimlerChrysler announced it was withdrawing the concession under which the Singapore company had imported and sold Mercedes-Benz since 1951. Ironically, the proposed merger between Daimler and Mitsubishi (see story page 55) is potentially another punch in the solar plexus for the company: It holds the concession for Mitsubishi, which was the third-best-selling automobile brand in Singapore last year behind Nissan and Toyota. In 1996, before the Crisis, Mercedes was No. 2 in Singapore behind Toyota.

Needless to say, Cycle & Carriage had an urgent incentive to buy something. An analyst report by Merrill Lynch doubts the combination will benefit the operations of either Astra or Cycle & Carriage, but it assumes the new owners will pay more attention to Astra shareholders. Philip Eng, managing director for Cycle & Carriage, told Asiaweek that no big changes are planned for Astra: "We don't want to tamper with success."

Don't Wait For More
Toyota and Honda remain holdouts

And then there were two. With the sale of a controlling one-third stake in Mitsubishi Motors to DaimlerChrysler for $2 billion, the only remaining Japan-only carmakers left are Toyota Motor and Honda Motor. The Mitsubishi deal gives Daimler, now the world's third-largest car company behind General Motors and Ford, an important toehold in Japan and throughout Asia. Before the deal, Daimler generated only 4% of its global sales from Asia. The company hopes the addition of Mitsubishi will boost that share in coming years to 25%.

Daimler insists it will not assume any of Mitsubishi's enormous $14 billion debt, although the German company's strength should help Mitsubishi negotiate with creditors for more favorable terms. After Daimler, if you're waiting for Toyota or Honda to be the next to find foreign partners, don't hold your breath.

Toyota has often rejected the idea that it would seek a partner, and Asia's fourth-largest company by sales clearly has the wherewithal to go it alone. Nakanishi Takaki, an analyst with Merrill Lynch in Tokyo, says he doubts Toyota would enter a partnership even if it would help the company in Europe, where it is relatively weak. "Toyota has faith in its group and corporate culture, and thus is not optimistic about prospects for making a cross-cultural partnership work." Smaller Honda, Japan's third-largest carmaker by sales (behind Toyota and Renault-controlled Nissan), is at once the more apt candidate for a foreign partner - it's top-notch R&D program is especially desirable - but also the more adamant that it will not take one. "Our policy of going independent remains unchanged," states Honda CEO Yoshino Hiroyuki. Translation to any foreign company with ambitions of a merger: Don't even think about it.

By Murakami Mutsuko/Tokyo

And yet, some tampering is called for and asset sales seem inevitable. The assembly of cars, vans and motorcycles accounted for just 69% of the Astra's 1998 revenues. But the conglomerate also includes a forestry arm (which may be the first unit to go), a consumer products unit that produces Nike shoes under license, a subsidiary that mines coal and a plantation that produces and exports palm oil. Astra has done little to reduce this sprawling empire while awaiting a buyer. "Everything was in turmoil for the last six months," says Theodore Rachmat, now in his second stint as Astra's president.

Astra represents one of the best corporate buying opportunities in Indonesia - a respected management in a dominant 50% market position with revenue, depressed for the last two years, clearly on the upswing. Enthuses Patrick Cheung, chief executive of the U.S.-based Lazard Asia Fund, which bought the second-biggest piece of the Singapore consortium's share: "It's probably the best recovery play in Indonesia."

The winding course of the sale must give pause to anyone who wants to tout it as an example of what Indonesia must do next. Late last year, IBRA selected a group led by Newbridge Capital and Gilbert Global Equity Partners, both U.S. investment funds, to be Astra's new owners. But they pulled out of the deal, complaining that then-president Suwandi blocked their due diligence. Astra shareholders later fired Suwandi, hired Rachmat, and a new round of bidding began.

Having once had the inside track, Newbridge foundered in its second try when its erstwhile partner pulled out. Informed sources told Asiaweek that Gilbert Global Equity decided that Astra and Indonesia were simply too risky. Newbridge succeeded in finding new investors but could never fill the hole left by Gilbert's departure. The Cycle & Carriage bid worked out to nearly 50 cents a share, which was slightly less than the original Newbridge-Gilbert offer but from 5% to 13.5% higher than the later, Newbridge-only bid.

For no entity were the stakes higher in the Astra saga than Indonesia itself. IBRA had pledged to provide the national coffers with $2.3 billion from asset sales by March 31. Through a variety of smaller, less-publicized deals, it was approaching the number; the Astra deal put it over the top. "It is a landmark transaction for our country," proclaimed IBRA chairman Cacuk Sudarijanto. Economic recovery depends on IBRA's success in finding good investors to recapitalize companies and banks. Merrill Lynch estimates that foreign investors owned less than half of Astra before the deal but will control 75% to 85% after - making Astra the first Indonesian-listed company more than half-owned by foreigners.

Nevertheless, Indonesia has started slowly in its recovery, especially compared with the rest of the region. The International Monetary Fund recently announced it is postponing the release of $400 million from a $5 billion loan it has promised. IMF Indonesia representative John Dodsworth said the Astra sale is "definitely a bright note," but he complained that delays in implementing promised reforms prevent any further disbursement. Cacuk has promised to proceed with sales of between 12 and 20 companies "over the next few months." Cacuk just fired IBRA deputy chairman Eko Budianto because, the chairman said, Eko was not moving fast enough on asset sales.

Cacuk says the Astra deal will "build momentum abroad for the Indonesian recovery." Will it? A critic notes that other IBRA assets will hardly "fall like dominoes" because of Astra. Business executives complain that IBRA can be difficult and sometimes just plain amateurish. Investment advisers now tell clients to avoid IBRA altogether because it is easier, faster and less frustrating to start a business from scratch. As one banker told Asiaweek: "If the easiest one [Astra] was this hard, it doesn't bode well."

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