Texmaco's Survival Guide

In a recent interview with the REVIEW, Sinivasan appeared unperturbed. "I will fight them," he says when asked whether he is worried about Laksamana Sukardi and Kwik Kian Gie, another former minister and critic, returning under Megawati. Observers say that Sinivasan may be counting on allegedly close ties with Megawati's businessman husband, Taufik Kiemas.
Sinivasan's story mirrors Indonesia's own--its giddy rise, steep fall and uncertain recovery. His group's dealings with Ibra, shrouded in secrecy, underscore how the country has failed to take hard economic decisions, particularly when they affect the well-connected. A senior government official who, like many persons interviewed for this story, declined to be named calls Sinivasan "a symbol of impunity."

He is also a symbol of the challenges facing the new government. It needs to make Ibra more efficient and transparent and reassure ordinary Indonesians that the wealthy are not above the law. But, going by the recent past, this will remain an uphill struggle. 

Criticism of Sinivasan boils down to one single point--using influence to ensure special treatment. In November 1999, Laksamana Sukardi, then minister for state enterprises, called Sinivasan part of a "high-level conspiracy" with Suharto that led to state-owned Bank Negara Indonesia, or BNI, lending Texmaco $900m in violation of central bank regulations. 

Last year, the conglomerate's deal with Ibra was widely criticized for giving Texmaco too much time--11 years--to pay back its debts, for leaving Sinivasan in control and for being shrouded in secrecy. Keeping Sinivasan in charge, say critics, will allow the company to siphon out cash that should be used repay debts. In May, Sinivasan was accused of using proceeds from the sale of one of his companies in Europe to buy back another company that he once owned.

Sinivasan denies any wrongdoing. He says Texmaco was not the only one to receive cash from state banks amid Indonesia's financial meltdown in 1998. He blames his legal troubles on a political vendetta, and accuses Laksamana Sukardi of conspiring to bring him down along with the ethnic Chinese who dominate Indonesian business. 

Denials aside, Sinivasan appears to have realized that the only way to resurrect his empire is by invoking nationalism. He says Texmaco is a "national asset," a symbol of Indonesia's attempt to become an industrialized country and compares his own ambition to Henry Ford's. Texmaco officials attack the International Monetary Fund for practising "neo-colonialism." They argue that the company is a victim of circumstances--the Asian financial crisis--and that Texmaco will be back on its feet. 

Sinivasan is confident that Texmaco will repay all its debts to Ibra within the next seven years, which will let him take back shares held by Ibra. Some 70% of a holding company that controls Texmaco's textiles businesses is pledged to Ibra. This includes flagship Polysindo, Southeast Asia's largest polyester manufacturer. And 100% of another holding company for his highly leveraged engineering companies is also with Ibra.

Ibra defends its deal with Texmaco. According to Irwan Siregar, a deputy chairman, Ibra has hired a European law firm to look into the charges of Texmaco selling assets abroad and has asked PricewaterhouseCoopers to "control and monitor cash movements." Siregar says that Ibra will recover more money by allowing Texmaco to repay its debts than by selling its companies at rock-bottom prices. 

Outsiders, however, have little faith in either Texmaco's long-term prospects or Ibra's ability to supervise its finances. Textile flagship Polysindo lost nearly 33 billion rupiah ($2.9 million) in 2000. Texmaco Perkasa Engineering lost another 118 billion rupiah. "I think it's impossible for the group to recover," says Wilson Nababan, who heads the business investigation company Cisi Raya Utama. "It's in a bad, bad debt trap." 

For now, nationalism and talk of a conspiracy are convenient tools. They help justify Texmaco not being restructured or sold to foreigners and Sinivasan's continued management. Moreover, they give Texmaco's debt-ridden and practically idle engineering division an excuse to turn to state-owned banks for cash. The company has been seeking a $60 million loan from state-owned Bank Mandiri. If successful, it will likely set off a storm of protest from the IMF and further damage foreign investor confidence by showing that state-owned banks can't give up the politically-motivated lending that lay at the roots of the Asian financial crisis. 

To be fair, Sinivasan's empire was not built on government largesse and political connections alone. According to one long-term Western observer of Indonesian business, in the Suharto era anyone with grand ambitions had to build a relationship with the strongman. 

But he distinguishes those whose success was entirely dependent on political clout from those who had reasonably well-run businesses but also benefited from a relationship with the president. For example, he says the Suharto children and timber tycoons Bob Hasan and Prajogo Pangestu built their fortunes on connections alone. Sinivasan and the Widjajas of the Sinar Mas Group, on the other hand, cultivated Suharto because after a point they realized that they had to. "He wasn't in oil and gas or government contracting, so I have a lot more respect for him," he says of Sinivasan. 

The Texmaco Group consists of 20 companies, six of which are publicly listed. The group is broadly divided into two divisions, textiles and engineering. It says it employs 43,000 people mostly in the textiles division, which makes everything from purified terephthalic acid, or PTA, to yarn and garments. The engineering division makes machine tools, textile machinery, trucks and buses. 

It is a long way from Sinivasan's humble beginnings. Sinivasan was born in 1937 in Medan, North Sumatra, the grandson of ethnic Tamils who arrived in Indonesia at the turn of the century to work as transport managers on a rubber plantation. The family was not well off and Sinivasan started work immediately after high school--as an English teacher at a local school and as a clerk in a British firm. Friends and family questioned his decision to leave the security of the clerkship when he first decided to strike out on his own in the late 1950s. 

By the early 1980s Sinivasan had bought a used yarn plant from the United States and set it up in Indonesia. Sinivasan understood the textile business, and his company was buoyed by a favourable business climate--low labour costs, subsidized energy and low tariffs on key raw materials such as PTA. By the early 1990s, Texmaco was selling textiles in 55 countries. Meanwhile, the textile industry worldwide was moving from high-cost countries to poorer countries such as Indonesia and China.

Between 1992 and 1996 Polysindo's revenues nearly tripled from 581.6 billion rupiah to 1.4 trillion rupiah, about $588 million at the time. The company's explosive growth coincided with a liberalization of Indonesia's financial sector and an influx of foreign capital seeking to profit from the fabled East Asian miracle. 

By 1997, Texmaco included polymer and a massive PTA plant, making it the largest company of its kind in Southeast Asia and by some estimates the fifth-largest polyester manufacturer by capacity in the world. With a record in textiles and Polysindo's breakneck growth, Sinivasan was able to fund his expansion into related areas partly by raising money on the international market through bonds. Between 1991 and 1996, Texmaco raised more than $650 million through bond offerings on international markets, the vast majority of this through Polysindo. But to fund his engineering venture, Sinivasan turned to Indonesian state-owned banks like BNI.

When the Asian Crisis hit Indonesia, Texmaco's massive debt, much of it in dollars, ballooned. The rupiah went from 2,500 to 17,000 to the dollar, and interest rates shot up from 20% to about 70%. Indonesia's banking industry collapsed and the banks that had lent Texmaco billions now came under Ibra. In 1997, Suharto had nominated Sinivasan and two other businessmen to Indonesia's highest legislative body, the People's Consultative Assembly. During the dying days of his presidency, in 1998, he gave the green light for $900m from Indonesia's foreign-exchange coffers to be poured into Texmaco. 

Sinivasan argues that he was a victim of bad luck and that had the Asian Crisis not occurred he would have been in a strong position. But, say his critics, having gambled for high stakes and lost Sinivasan refused to surrender. Thanks to his deal with Ibra, he and his mainly Indian expatriate managers remain in charge. An investigation into the BNI loan launched by the attorney-general's office was dropped. And former President Wahid himself called for Texmaco and two other companies to be protected because of their value to the economy as exporters.
In Indonesia, as in much of Asia, business fortunes can rise and fall depending on proximity to political power. A new government serves up new uncertainties for Sinivasan. It may reopen his memorandum of understanding with Ibra, strip him of management control, or even sell his businesses to the highest bidder. Sinivasan will be hoping that a healthy dose of nationalist rhetoric and dreams about industrializing Indonesia will keep him one step ahead of his creditors.