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Economy

Indonesia's Indofood rattles investors by buying land from CEO

Food giant's $164 million payout is equal to 16.5% of its cash holdings

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The booth of Indonesian food giant PT Indofood Sukses Makmur at a trade exhibition in Jakarta October 2016.   © Reuters

JAKARTA -- Indonesian food giant Indofood Sukses Makmur's 2.2 trillion rupiah ($164 million) purchase of land in Jakarta from its chief executive, billionaire tycoon Anthoni Salim, is raising fresh questions over corporate governance in a country where close-knit families wield strong influence over group companies.
 
The deal, announced on June 8 by Hong Kong-listed First Pacific, Indofood's parent company, had sent Indofood's stock price 5% lower by June 13, as investors considered the additional financial burden. The stock rose 0.9% on Wednesday, and is still up 8% so far this year.
 
The transaction involves Aston Inti Makmur, an Indofood subsidiary, buying six plots of land in Penjaringan, North Jakarta, with a total area of 42,877 sq. meters for 51 million rupiah per sq. meter. The sellers are Anthoni Salim and Adithya Suramitra, a local company that he owns.
 
Indofood group subsidiary Salim Ivomas Pratama already uses the land to operate cooking oil facilities. First Pacific said Anthoni Salim had been leasing the property to Salim Ivomas -- some of it for free -- but that after he received an offer from "an independent third party," he gave Indofood a priority offer to buy it.
 
Indofood "recognizes the importance of the availability of the purchased lands ... to continue its cooking oil production business and decided to accept the offer," First Pacific said.
 
The deal, which surprised analysts, highlights the influence that controlling shareholders can have over the companies they own, and raises questions over the ability of such businesses to protect the interests of minority shareholders. First Pacific said Anthoni Salim abstained from voting on the acquisition. But Indofood's board of directors includes his son, Axton Salim, and Franciscus Welirang, who is married to Anthoni Salim's sister.
 
"There have been major improvements in corporate governance in Indonesia," said Yuri Sato, executive vice president at the Japan External Trade Organization. "But when the owner and manager are the same, there are limits to checks and balances."
 
Anthoni Salim is the second-generation chief executive of Salim Group, considered Indonesia's largest conglomerate, with interests spanning food, retail, automobiles and more. He is the largest shareholder in First Pacific. While some individual companies such as Indofood are publicly listed, the group's overall financials are nearly impossible to grasp due to complex holding structures.
 
The acquisition price of 2.2 trillion rupiah is equal to 16.5% of Indofood's cash on hand as of March, according to its financial statement. The "purchase price does not look cheap considering the location," local brokerage Mandiri Sekuritas said in a research note on June 9. First Pacific said the land's valuation was provided by "an independent valuer."
 
Sato said it is unlikely that Anthoni Salim would conduct a deal that would jeopardize Indofood -- one of the world's largest producers of instant noodles -- because the company is Salim Group's crown jewel. She acknowledged that, "There are merits of a structure in which ownership and management are not separated."
 
Indofood did not respond to requests for comment, and Anthoni Salim could not be reached for comment.

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