THE DHARMALA GROUP; THREE OF ITS BUSINESS PILLARS HAVE COLLAPSED.
The fodder industry owned by the Dharmala Group has been able to survive from crisis to crisis partly because it is an integrated industry involved in the basic materials, which include dried cassava, the processing and the end user, the chicken industry. As this is an integrated industry, it can be large-scale and the production process more efficient. Thus it is possible to reduce the production cost and finally reduce the selling price.
Non-integrated fodder industries, particularly end users, are obviously facing grave problems during this time of crisis. Most of the basic materials for animal fodder are still imported and the price has continued to climb due to the strengthening of the US dollar in relation to the rupiah. With the increase in the price of these basic materials, the animal fodder industry has had to increase the selling price of its production to avoid having to close down.
On the other hand the poultry industry, which is one of the main consumers of this fodder, is going through a period of slackness as consumption of chicken in Indonesia has dropped dramatically due to the drop in the purchasing power of most of the Indonesian people. As a result a lot of chicken farmers have closed down, particularly those which are not involved in integrated industries because they are not able to adjust to the dramatic increase in the cost of chicken feed. The same is the case with fodder industries which are not integrated with their end users, for example the chicken food industry. Selling their production has become a problem because a lot of chicken farmers have become bankrupt.
The fodder industry threatened with bankruptcy
The prolonged storm of the economic crisis has slowly but surely eroded the performance of the Dharmala Group's food industry, an industry which was being relied on as one of the backbones of this group, aimed at maintaining its existence during this time of economic crisis. One indication of the problems being faced by the Dharmala Group's fodder industry is the bankruptcy charges filed by three Dharmala Group creditors -- Bank Niaga, ING Indonesia Bank and International Finance Corporation -- agains P.T. Dharmala Agrifood (DA). DA is one of the subsidiaries of the Dharmala Group, whose core business is the integrated fodder industry. This company is also one of the biggest contributors to the Dharmala Group. It will be a severe blow to the Dharmala Group, if the bankruptcy charges against DA are approved by the Trade Court.
According to the Corporate Secretary of DA, Dicky Djamil, as quoted by Bisnis Indonesia, DA owes Rp. 6 billion to Bank Niaga, US$ 6.7 million to ING Indonesian Bank and US$ 32.2 million to IFC (a subsidiary of the World Bank). According to Dicky, DA has striven to restructurise its debts. For example in mid-1998, DA appointed HSBC Investment Bank (Singapore) as its financial advisor. He also explained, along with the financial advisor, that DA had had a meeting with its creditors. DA did not understand why a bankruptcy charge had been filed, particularly as the loan from IFC (one of those filing for bankruptcy) was not scheduled for repayment until the year 2003.
The management of DA has admitted that, since mid-1998, DA has applied the principle of equal treatment to all creditors, that DA is not able to pay instalments or interest as the company is in a very difficult position due to the impact of the economic crisis. On the other hand the management of DA still feels able to carry on its business based on the consideration that the commodities trading field, one of its core businesses, is still feasible. The commodities being exported include dried cassava, tapioca and wheat.
Up to the first semester of 1998 DA had incurred debts of Rp. 1.4 trillion. These debts were incurred to 20 creditors including the three creditors who have laid bankruptcy charges. Losses incurred through the difference in the exchange rate totalled Rp. 522 billion on 30th June, resulting in losses of around Rp. 389 billion net, losses which have eaten away at capital until DAA's equity has dopped to minus Rp. 376 billion.
In mid-1998 the Dharmala Group's finance business, particularly the banking sector began to be able to breathe after having been squeezed by the financial crisis. One indication of the improved situation was the fact that one bank owned by Dharmala, which had total assets of around Rp. 1.7 trillion in December 1997, was involved by the Government in a programme of channelling credit to exporters and distributors. This programme has been operating since July 1998 with its financing most probably being backed up by the Government.
Even though the Dharmala Group's revenue has dropped drastically, it still has the chance of surviving, even though being squeezed by the economic crisis. However, if the crisis continues and the national economy deteriorates, anything could happen. The worst scenario of the Dharmala Group's collapsing, would not be impossible if the crisis continued, particularly as several business pillars of the Dharmala Group have been struck down by the crisis.
The Dharmala Group is one of the leading conglomerates, as can be seen in the sales turnover over the past three years. According to Data Consult, the Dharmala Group registered a sales turnover of Rp. 3,960 billion in 1995, when the Dharmala Sakti Sejahtera Group and the Putra Surya Perkasa Group are also included. Then there was an increase to Rp. 4,350 billion in 1996, followed by an estimated drop of 20% to Rp. 3,480 billion. It is estimated that the Dharmala Group's sales turnover will drop sharply by 40% to Rp. 2,090 billion.
Table - 1 Profile of the Dharmala Group Detail Holding company : DHARMALA INTI UTAMA, PT Address : Wisma Dharmala Sakti, 21th Floor Jl. Jend. Sudirman Kav. 32 Jakarta 10220 Phone(s) : (021) 5704456 (Hunting) Fax : (021) 5703438 Number of company : 149 Companies Line of business : -Finance: Bangking, insurance, leasing, securities, venture capital -Industry: Aluminum industry, stock feed, electronic, automotive component, plastic packaging, stainless steel, households industry -Property: Real estate, office buildings, hotelry -Trading: Agriculture trade, export, cassava tapioca, corn, coffee, stock feed, distributors, electronic equipment, heavy equipment services and maintenance, other -Services: Contracting services, design interior service, travel agent, -other Total Asset : 1997 - Rp 20,500 billion (estimates) Sales Turnover : 1997 - Rp 3,480 billion (estimates) Chairman : -Mr. Soehargo Gondokoesoemo Other Key Persons : -Mr. Hendro Santoso Gondokoesoemo -Mr. Dwijanto Santoso Gondokoesoemo -Mr. Soeyanto Santoso Gondokoesoemo -Mr. Slamet Santoso Gondokoesoemo -Mr. Triyono Santoso Gondokoesoemo -Mr. Hanadji Lukman
Source: Data Consult
In order to improve the performance of its companies, which has dropped dramatically due to the crisis and in order to guarantee its continued existence, the Dharmala Group has tried several strategies including restructurisation of its swelling debts. One such strategy is through P.T. Dharmala Sakti Sejahtera (DSS), through which the Dharmala Group has restructured Rp. 1.8 trillion of its debts and Rp. 323 billion of the debts of its subsidiary, P.T. Dharmala Sejahtera Finance.
DSS has also appointed HSBC Investment Bank (Singapore) as its financial advisor. Another effort to solve its debt problem has taken the form of involvement in the Jakarta Initiative in order to restructure its debts. According to Migi R. Byaktika, DSS's Manager of Finance, as quoted by Harian Bisnis Indonesia, discussion with creditors is under way.
Meanwhile in its 30th June report DSS recorded losses prior to tax totalling Rp. 1.9 trillion. Over the same period of last year pre-tax profit totalled around Rp. 90 billion. Up to the first semester of 1998, DSS's debts totalled Rp. 8.9 trillion which included Rp. 6.2 trillion in bank debts and Rp. 123 billion in bonds.
The Dharmala Group is a conglomerate which has been active in expanding overseas, as is indicated by the number of companies this group owns overseas. Countries which are the main destinations of the Dharmala Group's investment are Singapore, Thailand, Hongkong, China, the Philippines, Taiwan and USA. The main fields of enterprise in which these Dharmala companies are involved overseas are trading, property, finance, particularly banking and investment holding. There are about 50 companies overseas which are subsidiaries of the Dharmala Group. The economic crisis is believed to have hindered the Dharmala Group's business expansion overseas. In fact it is not impossible that Dharmala may have to sell some of its subsidiaries overseas in order to cover the company's debts in Indonesia.
Beginning from trading in agricultural products
The Dharmala Group began its business with P.T. Dharmala Inti Utama (DIU) which was founded in mid-1950 in Jakarta. This company, founded by Soehargo Gondokoesoemo and his partners, including Mansur Tandiono and Louis Mansur is the original company. DIU at first was involved only in trading, particularly the trading of agricultural products such as coffee, pepper and cassava. Most of these agricultural products were exported by DIU.
The Dharmala Group's trade in agricultural products continued to increase until finally Soehargo was able to establish factories processing agricultural produce -- coffee, tapioca and fodder- processing plants. Most of the production of these processing plants is directed towards the domestic market.
As time went by, the Dharmala Group diversified, no longer depending on agricultural produce and the processing industries which had been its original business pillars, but reaching out to several other business sectors. Intensive expansion began in the 1970's with this group's entering the property business, building various housing projects, office buildings and hotels. Through its property business the Dharmala Group's name became well-known among the conglomerates, bringing it up to the level of the leading conglomerates of Indonesia. The property business has become one of the main businesses owned by the Dharmala Group.
The position of the Dharmala Group in the property sector strengthened after the Dharmala Group and the Duta Anggada Group joined to form P.T. Putra Surya Perkasa which is involved in the property business, particularly housing, office buildings and hotels. P.T. Putra Surya Perkasa (PSP) has developed rapidly as an increasing number of projects have been completed and companies formed. Due to the rapid growth of PSP the PSP Group was established in 1985 as a sub-group and PT PSP became the holding company. In its development the PSP Group's core businesses apart from property are finance and fast food business. Apart from the PSP Group, the Dharmala Group has another sub-group whose core business is finance -- Dharmala Sakti Sejahtera.
Table - 2 Companies, some of whose shares are owned by the Dharmala Group Name of company Line of business Finance: -AMP Panin Life, PT Insurance -Asuransi Jiwa Dharmala Manulife, PT Insurance -Dharmala Insurance, PT Insurance -Sedgwich James Dharmala, PT Insurance broker -KLC Dharmala Finance, PT Leasing -BBL Dharmala Finance, PT Leasing -Deemte Arthadharma Sekuritas, PT Securities -CARR Dharmala Securities INDONESIA PT Securities -Dharmala Inti Utama, PT Holding company -Dharmala Sakti Sejahtera, PT Holding company -Dharmala Sejahtera Finance, PT Finance -Bank Dharmala, PT Banking Industry: -Brantas Pelletizing, PT Stock feed industry -Dharmala Agrifood, PT Stock feed industry -Alfred Toepfler Pelletizing, PT Stock feed industry -Cirebon Makmur Pelletizing, PT Stock feed industry -Lampung Pelletizing Factory, PT Stock feed industry -Probolinggo Pelletizing Factory, PT Stock feed industry -Sumber Betas Metro, PT Stock feed industry -Aiwa Dharmala, PT Electronic industry -Dharmala Tomei Industrial, PT Electronic industry -Aster Dharma Industri, PT Plastic sack industry -Indobaja Prima Murni, PT Automotive component -Jamaindo Metal Industries, PT Aluminum industry Property: -Cipta Paramula Sejati, PT Property -Dharmala Intiland, PT Property -Dharmala Land, PT Property -Putra Surya Perkasa, PT Property -Pembangunan Darmo Grande, PT Real estate -Taman Harapan Indah, PT Real estate -Tata Wira Sakti, PT Real estate -Deverindo Indograha, PT Hotel development -Grand Interwisata, PT Hotel development -Dharmala Sakti Enterprise, PT Office buildings -Wisma Dharmala Realty, PT Office buildings -Yamano Utama, PT Office buildings -Dharmala RSEA, PT Industrial estate Trading: -Dharmala Niagatama, PT Trading -Mansur, NV Trading -Dharmala Sakti Electronic, PT Electronics equipment distributor -Mekasindo Dharma International, PT Heavy equipment industry
Source: Data Consult