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A business bancbone of the giant Gajah Runggal Group, which is founded by tycoon Sjamsul Nursalim, is cracking. Its bank, Bank Dagang Nasional Indonesia (BDNI), is facing serious financial difficulty. BDNI is known to be a top level bank with assets amounting to Rp 23.4 trillion by September 1997. To prevent it from crumbling and protect its customers the bank restructuring agency (BPPN) took over the bank management and put it under its care starting April 1998. BPPN, which officially is in control of the bank, handed over its day to day management to Bank Dagang Negara, a state-owned bank. In the meantime, pending the result of an auditing by international accountants, the former bank leaders including the big boss, Nursalim, are banned from leaving the country.

The latest report carried by Warta Ekonomi, said that the BDNI shares owned by the majority shareholders have been used as collaterals for domestic and overseas loans. The central bank is not likely unware of the practice. Under an agreement when BDNI management was taken over by BPPN, the bank should give its assets as collateral for its liquidity credits from the central bank. But it turned out later that BDNI has put its shares as collateral for loan from other sources. BDNI is one of the largest receivers of liquidity credits from the central bank. Its liquidity credits amount to Rp 27.6 trillion, the largest received by those under the care of BPPN.

BDNI has reported earlier before being audited by international accountants, that it had assets valued at Rp 33.6 trillion with obligation amounting to Rp 32.3 trillion. But after the results of agreed upon due diligence procedures (ADDP) were reported early in April, 1998, the assets were worth only Rp 5.8 trillion and its obligation amounted to Rp 48.2 trillion. This means there was difference in the asset and obligation calculations. The bank assets were marked up by 82% and its obligations were reported 33 % smaller. A question is where the money has been kept by BDNI and why the central bank was that easy to give credit in such big amount.

The collapse that seems to be unavoidable of BDNI would be a bad news for all other subsidiaries of the Gajah Tunggal Group especially those operating in finance business like insurance and leasing. The company group could not be expected to keep its business empire from breaking up. The impact would be extensive affecting its subsidiaries operating in rubber goods industry, chemical industry, orpoerty sector, retail business, PVC pipe industry, cable industry, shrimp breeding industry and sanitary napkin industry. Over expansion in the form of the subsidiaries is believed to be one of the main reasons for the collapse of the bank.

PT Gajah Tunggal, the holding company, also has to deal with its swelling debts. PT Gajah Tunggal, the largest tyre producer in the country, and PT GT Petrochem, one of its subsidiaries, run up a total debt of US$ 1 billion. Sources at PT Gajah Tunggal said that 70% of the debts are hedged and the remaining 30% are naturally hedged as 50% of its sales are in exports. The sources said the debts are not yet due for repayment.

But whatever the reasons, the debt with that amount would carry great risk that could threatened the very existence of the company group. The income of the company group is declining especially in the past two years. It is feared that it would not be able to meet its obligations later with the declining performance.

In mid June 1998, about 4,000 workers of PT Gajah Tunggal were on strike demanding an increase in wages forcing the company to temporarily stopped operation. Earlier Nursalim was abducted reportedly by a group of people seeking to take revenge against him and that Nursalim was finally released after paying US$ 17 million. But other sources said that his abductors were the bank depositors who wanted their money back. At that time BDNI was no longer in position to serve large withdrawal.

The company group has been suspected of being involved in corruption and collusion during the Suharto government. In mid 1991, PT Panen Lestari Indah a subsidiary of the company group, was licensed by the government to open a department store in cooperation with Sogo from Japan although foreign investment was banned from operating in retail business.

Regardless of the alleged collusion, the Gajah Tunggal Group is reeling under the economic crisis. PT GT Kabel Indonesia formerly PT Kabel Metal Indonesia, has been forced to slow down production. The company uses imported basic materials, therefore its production cost is high. The company now operates only to meet order paid in advance. Its main buyers have been PLN and PT Telkom, which have shelved almost all of their projects. Therefore, there is virtually no order received from the two large traditional buyers.

Shrimp business the main hope of the falling empire

The shrimp breeding business under PT Dipasena Citra Darmaja (DCD) and PT Central Pertiwi Bratasena (CPB), is seen as giving some hope of keeping the business empire from falling apart. But the contribution of its shrimp business is feared not enough to shore up the reeling giant. Its main earners have been its finance and tyre industrial companies, which are now beset by a host of problems.

The two shrimp breeding companies have large shrimp breeding ponds in Lampung totaling 50,000 hectares. Lampung is a major producer of shrimp in the country. In 1999, Lampung is projected to produce 180,000 tons of shrimp and PT CPB and PT DCP are expected to account for 165,000 tons and 15,000 tons of the total production respectively.

Gajah Tunggal has built a container terminal and has two container ships each measuring 1,100 tons to handle the exports of its shrimp production. It also has a shrimp feed factory run by PT Bestari Indoprima.

The two shrimp companies are expected to contribute 66% to the country's total production of 250,000 tons in 1999. Exports by Gajah Tunggal in 1997 were valued at Rp 350 billion to Rp 400 billion. That year the sales turnover of the company group totaled Rp 2,225 billion. This means the shrimp sector contributed only about 18% to its total sales.

Starting with small tyre factory

The embryo of the Gajah Tunggal Group was NV Hok Thay Hin, a tyre factory located in North Jakarta. The tyre factory was founded by Tan Kin Soei and Zainal Junaid. The company, which was set up in 1951, started by producing tyres for bicycles and man-powered tricycle. In 1970, the name of the company was change with PT Gajah Tunggal.

In 1972 PT Gajah Tunggal built a factory producing motorcycle tyres. Later in cooperation with Inoue Rubber Co. Ltd from Japan with a license from IRC, it expanded its factory. The company began to dominate the domestic market, with a market share of 70%. In 1980, the company began to produce car tyres and the business flourished and the company soon became one of the largest tyre producers in the country.

The company expansion was more impressive after Samsul Nursalim took over as the company's number one in 1987. The company diversified operation to other sectors. In 1990, it stopped producing bicycle and tricycle tyres but its production capacity for car and motorcycle tyres was increased. Its business in the Financial, electronic, cable, property and other sectors also thrived.

Now the profitable days are over. It is facing a big test to keep its existence among the country's largest conglomerates.
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Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Jul 27, 1998

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