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THE ARTHA GRAHA GROUP - ITS BUSINESS EXPANSION HELD BACK BY THE CRISIS

The Artha Graha Group, or the Danayasa Arthatama Group, became known on the national business scene in 1989 when P.T. Danayasa Arthatama (DA), which is the holding company of the Artha Graha Group acquired majority shares in P.T. Jakarta International Hotel Development (JIHD), which manages Hotel Borobudur. This 5-star hotel, which has now gone public, was originally a State-owned company (BUMN), the majority of whose shares were owned by the Department of Finance

This company's position in the property business became more outstanding after the Artha Graha Group started to build an integrated business centre in the elite area of Jl. Sudirman, South Jakarta. This project, called the Sudirman Central Business District (SCBD) involved investment of around Rp. 7.5 trillion. The area covered by this project is 40.4 hectare. It was planned to construct an office building, a hotel, an upper-class residential area, a trade centre, an information centre and a city air terminal. This project was scheduled for completion in stages with the total project being completed within 10 - 15 years.

Construction of the first stage commenced in 1992 and the Artha Graha Bank building and the Jakarta Stock Exchange Building have already been completed. Due to the economic crisis which struck Indonesia, the pace of development of the next stage slowed down. Cesma International of Singapore, a subsidiary of the Singapore Housing & Development Board, was responsible for the complete design of the SCBD project. This project also involved consultants from Japan, Nippon Koei and Philips Cox and CMPSF of Australia.

In order to support the activities of SCBD the Artha Graha Group established several subsidiaries, including P.T. Danareksa Jakarta International (DJI) which is a joint venture between Artha Graha Group through P.T. Jakarta International Hotel & Development (55%) and the State-owned company Danareksa (45%). P.T. DJI manages the Jakarta Stock Exchange building. P.T. Artha Telekomindo, which is completely owned by Artha Graha Group, is to manage all the infrastructure of the SCBD project. Through P.T. Indonesia Arthasangga Utama, the Artha Graha Group has cooperated with the State-owned company, P.T. Taspen to build an office building in the SCBD complex, which will most probably be used as the head office of P.T. Taspen. This building is currently under construction.

The Artha Graha Group appears to be striving in the SCBD project to take maximum advantage of the openings in the construction sector and in building management. The modus operandi is to establish subsidiaries or to cooperate with other companies. At a glance it appears that the Artha Graha Group is striving to monopolise construction activities and the management of the buildings in the SCBD project so that it is rather difficult for other parties to participate in this project.

The Artha Graha Group is one of the strong groups in the hotel sector. Through P.T. Kharisma Arya Paksi, this group has built 4-star hotels in Bali, the Kartika Plaza Hotel and also owns a 3-star hotel and cottages on Matahari Island in the Thousand Islands, North Jakarta.

In order to strengthen its property business, which is one of the main pillars of its strengths, Artha Graha Group went into partnership with Yan Mogi of the Sumber Mitra Group to establish a super block in Jl. Yos Sudarso, North Jakarta. These two groups of companies formed the consortium, P.T. Swadaya Pandu Artha, in which each partner owns 50% of the shares. The area needed for this project is around 40 hectare and the total investment Rp. 2 trillion. It is planned to construct an office building, a hotel, a shopping centre and a car selling centre. Construction of this project should have commenced at the beginning of this year. However, having been hit by the storm of recession, construction has been spasmodic and may be postponed in view of the slackness in the property sector.

Another business pillar of the Artha Graha Group is the banking sector through P.T. Bank Artha Graha (BAG) which is a medium-scale bank with total assets of around Rp. 1.5 trillion in December 1997. Through BAG the Artha Graha Group created a stir in the banking sector when it acquired P.T. Bank Artha Prima (BAP) at the beginning of 1998. This bank was owned by the Gunung Agung Group, which is a sub-group of Kosgoro. This acquisition at first moved slowly because, prior to being taken over by the Artha Graha Group, BAP was beset with financial scandals involving almost all the shareholders and the management. Some of the scandals which rose to the surface were the manipulation of BAP funds totalling around Rp. 360 billion by one of the owners, Kim Johannes Mulia, the younger brother of the big businessman, Johannes Kotjo. As a result of this case Kim Johannes is now confined to prison.

Then there was another financial scandal which almost brought BAP down i.e. the manipulation of commercial papers which involved several BAP shareholders and the bank directors. This sale of commercial papers by BAP seemed neither transparent nor supported by reasonable supervision and funding. Thus, when these commercial papers fell due, BAP was not able to pay. As a result this bank was in danger of becoming bankrupt. However finally Bank Indonesia became involved in a rescue operation by inviting new investors from the Artha Graha group. This huge corruption case, involving Rp. 1.2 trillion, dragged several of the owners and management of BAP into prison - Made Oka Masagung, Marcel Maulana, Chalid Aini, Husni Ali Tojib and Harry Suhalim.

After the Artha Graha Group acquired the majority shares in the Artha Prima Bank at the beginning of 1998, the name was changed to Bank Artha Pratama with total assets of around Rp. 700 billion up to December 1997. However the timing of Artha Graha Group's acquisition of Bank Artha Pratama was not good, as just at this time the storm of the monetary crisis hit Indonesia and sparked a liquidity crisis in the domestic banking sector. The banking world has been the serious victim of the blows of recession. Thus the Government has overhauled the banking system. The Artha Graha Group has also postponed the sale of shares of its two subsidiaries, P.T. Bank Artha Graha and P.T. Danayasa Arthatama on the Jakarta Stock Exchange as the business climate is considered unfavourable.

Apart from the two main pillars of its business in the property and the banking sectors, the progress of which has been hindered by the recession, another field of enterprise of the Artha Graha Group, also struck by the impact of the recession, is the shoe industry which comes under the management of P.T. Artha Graha Investama Sentra (AGIS). In April 1998, P.T. AGIS was involved in consolidation to ensure the survival of its company. The results of this consolidation were very bitter, because the company eventually decided to lay off around 850 of the approximately 1,100 employees who work at the Pasuruan Unit II in East Java.

This conglomerate was planning to enter the transportation field through P.T. Citra Dana, a joint venture between Artha Graha Group through P.T. Danayasa Arthatama, the Bimantara Group and the Jakarta Government. This company's plan to build up a transportation system in the form of an O-Bahn Rail Bus connecting Jalan Fatmawati (South Jakarta) with the Kota Area (Central Jakarta), is believed to have been abandoned. This project to the value of Rp. 250 billion would be difficult to realise in the current crisis state of the economy, with its being extremely difficult to look for loans. As well as this, there was concern that the Bimantara Group, one of the shareholders in P.T. Citra Dana, would be a hindrance, as at the present time businesses which have links with the family of Cendana (the street in which the former President lives) are the focus of a lot of community attention as they are believed to be contaminated by CCN (Corruption, Collusion and Nepotism).

Another project owned by the Artha Graha Group, which has been postponed due to financial factors, is the toll flyover in Bandung. This project, worth Rp. 149 billion, covers a distance of 5.98 km. In this project it was planned that Artha Graha Group through P.T. Arthayasa Adriprima should work with P.T. Primarindo Daya Investama and P.T. Transmega Eka Cipta Corp. of the Sinar Mas Broup. This toll road was to have covered the distance from Jl. Pasteur to Jl Surapati.

The overall performance of the Artha Graha Group worsened in 1997 as a result of being struck by the economic recession which resulted in the two pillars of its business, the property and the financial field, experiencing reduced activity. One indication of this downturn was the fact that the sales turnover of this group of companies is estimated to have dropped by around 15% in 1997 to only Rp. 635 billion in comparison with the former year's turnover of Rp. 750 billion. Artha Graha Group's total assets in 1997 were around Rp. 3.5 trillion.

This conglomerate's funding assisted by an Armed Forces foundation

Prior to the storm of the recession, the Artha Graha Group was expansive in developing its business, particularly in the property and banking sectors, which became the pillars of its business. In view of the huge investment needed by Artha Graha Group to develop property business projects like the integrated business centre in Jakarta, which involved investment of Rp 7.5 trillion, it is clear that this conglomerate has support from institutes which have both strong financial resources and power. Thus far the Artha Graha Group has been supported by funds from Armed Forces foundations, particularly the Kartika Eka Paksi Foundation which is an Army foundation.

Due to the large role played by this Army-linked foundation, particularly in funding, where is appears to play a dominant role, there is an impression that the Artha Graha Group is one of the money machines of the Army. One of the figures on whom this foundation depends and who has great business acumen is the retired Lieutenant-General Tiopan Bernard Silalahi (TB Silalahi), the former Secretary-General of the Department of Mining and Energy and the former Minister for the Supervision of the State Apparatus in the Sixth Development Cabinet. The private entrepreneurs in this group are represented by Tommy Winata (a Chinese businessman) and Nasroel Chas (an indigenous businessman) who are considered to play the role of professional managers granted executive responsibility by this Army-linked foundation.

Venturing into the fisheries sector

After being struck by the recession, Artha Graha Group's business performance in the two main fields of property and banking was hampered and unpredictable. In anticipating the worst possibilities resulting from the pressure of the economic crisis, the Artha Graha Group tried to find another business opportunity which would offer better prospects. One of the fields into which it is venturing is the fisheries sector. In the fisheries field, the Artha Graha Group works in partnership with Core Pacific Group of Taiwan (CPG) in the joint venture P.T. Dinamika Bahari Sejahtera (DBS) in which the share composition is 50% each. P.T. DBS is planning to develop integrated fisheries projects beginning from breeding and going through all the processes to canning. The capacity of this fisheries project is around 500,000 tons a year, all for the export market. This project, which will require investment of USS 60 million, is located at Tual, Maluku and is still in the preparatory stages.

Apart from its fisheries business the Artha Graha Group has other businesses, whose contribution to the group is still relatively small. One such business is the printing business in which, through P.T. Griyamedia Komunindo, it prints the economic and business magazine, 'Pilar'. Other businesses include general contracting and the shoe industry.

Starting from contracting ventures

Prior to becoming known as a conglomerate, the Artha Graha Group commenced its business as a general contractor, known as P.T. Hero Utama (P.T. HU). This company was established in Jakarta in April 1979 by Tommy Winata, Eddi Saputra, Edwin Mugni Sasradipura, Erlinda and Kurniawan Winata. Thanks to the business acumen of Tommy Winata, who was the most outstanding figure in P.T. HU, this company succeeded in obtaining several projects from the Government. These projects included the Education and Training Centre for the Department of Defence and Security at Palembang along with housing for officers, the construction of the Government Academy (APDN) to the value of Rp. 300 billion at Jatinangor, Sumedang, West Java. Other projects, for which the Artha Graha Group was able to win contracts, were the construction of the Sartika Plaza Building in Surabaya and the renovations of Hotel Kartika Plaza, Jakarta.

From the projects it was able to complete, P.T. HU, the original company from which Artha Graha Group developed, succeeded in acquiring capital which could then be rolled over to expand the company. As well as this, his company's success in building the Armed Forces Education and Training Centre, possibly brought Tommy Winata close to a few high-ranking members of the Armed Forces, particularly those associated with the Armed Forces' foundations. Thus Tommy Winata is reportedly supported in the financing of every business expansion by Armed Forces' foundations, particularly foundations linked with the Army. In fact there are indications in the business world that the Armed Forces' Foundations have the most influence in Tommy Winata's business activities including the time in 1989 when Tommy Winata used the P.T. Danayasa Arthamata flag to acquire the majority shares in Hotel Borobudur. It was from that time that the Artha Graha Group began to be counted on the national business scene.
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Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Aug 24, 1998
Words:2290
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