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Asia300

Company hedges against Indonesia fuel subsidy cut

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CEO of Astra International Prijono Sugiarto   © Reuters

JAKARTA -- Astra International, an Indonesian conglomerate, is diversifying from the auto industry. Slowing economic growth and intensifying competition led the company to invest in property, insurance, renewable energy and conventional power.

      The largest automotive distributor in Indonesia, Astra controls more than 50% of car and motorcycle sales. It is involved in domestic joint ventures with Toyota Motor, Honda Motor, Daihatsu Motor and other Japanese automakers.

     Domestic car sales this year will reach 1.25 million units, according to an estimate by the Association of Indonesia Automotive Industries, up 1.6% from 1.23 million in 2013. Next year, sales are expected to be flat due to fuel subsidy cuts.

     Iwan Hadiantoro, chief of Group Treasury & Investor Relations at Astra International, said Friday the company needs to diversify to maintain growth momentum. His company plans to invest 16 trillion rupiah ($1.29 billion) on expansion.

     Astra announced Friday it will spend $600 million on an office tower building and residential apartment developments in Central Jakarta. The projects will be complete in four years.    

      United Tractors, a mining and energy company under Astra, plans to buy a 50.1% stake in construction firm Acset Indonusa. Loka Cipta Kreasi, which holds 29.75% of the company, and Cross Plus Indonesia, owning 38.45%, will sell stakes to Astra. Negotiations are still underway, according to Astra, which expects an agreement before the end of the year.

     In 2015, United Tractors plans to spend $300 million, mostly on investments in coal producers Pama Persada and construction refinery of coal mine company Tuah Turangga Agung in Central Kalimantan. Investment in palm oil plantation refinery projects are also underway.

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