CT Corp.'s Chairul bets $3bn to prove Indonesia's consumption-led growth
WATARU SUZUKI, Nikkei staff writer
JAKARTA -- From his early days as a university student selling dental equipment to his peers, Chairul Tanjung has built a sprawling conglomerate by betting on changes in consumer trends. Now he is gearing up for another pivot.
"Three billion U.S. dollars in three years," he said slowly, pausing before each word to emphasize its significance. Speaking from his office looking over the busy streets of Jakarta he sounded calm but serious. His trademark smile, which has been captured countless times in photographs alongside heads of state and corporate executives, was gone.
$3 billion is the amount of money he intends to spend to build 100 mall-like retail stores across the Indonesian archipelago. Dubbed Transmart, the stores put greater emphasis on services and entertainment, compared to existing malls that are focused on shopping.
In a Transmart outlet in Jakarta -- one of three in operation -- screams could be heard from the top floor, which houses an indoor amusement park complete with a roller coaster that roams outside the building's walls. "People need something new, a trendsetter," he said. "So we come with a different concept."
In February, Chairul marched into the same store and declared the chain's nationwide rollout. "We will be very, very aggressive," he said over a microphone, attracting a crowd of shoppers. "In the next three to four years, we will make sure every major city has a Transmart." To fund the expansion, CT Corp., a holding company chaired by Chairul, sold a 17% stake in its retail arm to GIC, a Singapore state investment fund, for 5.2 trillion rupiah ($400 million).
Born and raised in a middle-class family in Jakarta, Chairul's interests are now spread across retail, media and finance. His net worth was $4.8 billion in 2015, according to Forbes magazine, making him the fifth richest person in the country. In an economy where big businesses are often owned by families of Chinese origin, or by foreign companies, Chairul is a homegrown Indonesian who built his business from the ground up.
In an autobiography published four years ago, to coincide with his 50th birthday, Chairul, now 54, said he was a natural born businessman. As a student in the dentistry department at the University of Indonesia, the country's top school, he sold photocopies of manuals required in training sessions, and then moved on to dental equipment, which he supplied using a connection with a friend whose father was the head of the army's dental unit.
"While other students were free to devote themselves entirely to their books during their time at university," he wrote, "I had pledged to devote myself to making money."
Eager to test his talents in the formal sector, he established a company upon graduation in 1987, which he later renamed CT Corp., using his initials. After running a successful shoe business with the advice of a partner who owned a factory, Chairul's first big break came in 1996, when he acquired a troubled bank, restructured its bad loans and turned its finances around.
When the Asian financial crisis struck the country's economy the following year, the bank was able to lend to its cash-strapped competitors with sky-high interest rates. Chairul changed its name to Bank Mega and took it public in 2000.
Chairul used his profits from banking to diversify into media and retail. He launched a free-to-air television network, Trans TV, in 2001, and acquired another network in 2006. He also snapped up franchise operators of foreign clothing and food brands.
His reputation as a strong local player was cemented in 2010, when CT Corp. became the Indonesian joint venture partner for French hypermarket operator Carrefour. The same year, Chairul was appointed as chairman of then-President Susilo Bambang Yudhoyono's National Economic Committee -- and later as chief economic minister for the last few months of Yudhoyono's second presidential term in 2014. Chairul had to retreat from his business roles to accept the cabinet appointment.
Chairul's views as the head of the economic committee were reflected in a widely-cited report published in 2012 by McKinsey & Co., a U.S.-based consultancy, which estimated that an additional 90 million Indonesians would enter the country's middle class by 2030. The boost in income levels would help to make Indonesia the world's seventh largest economy, the report said. As if to prove his point, CT Corp. bought Carrefour's Indonesian supermarket operations in 2013, later renaming the company Trans Retail.
During his stint as the member of the government, Chairul also won a reputation as a key figure capable of coordinating national policies and the interests of the business community. He successfully resolved a months-long dispute with the U.S. mining company Freeport-McMoRan over an extension of its export license. The meeting with former Freeport chairman James Moffett that led to an agreement lasted for only two hours. "I can do very good because I don't have a conflict of interest," Chairul explained, stressing that he has never asked the government for money.
Political interest in his services continued after Joko Widodo took over as president in October 2014. By Chairul's account, Widodo summoned him to the palace after the inauguration ceremony and asked if he was interested in joining the cabinet. Chairul politely declined, he said, telling the president: "I have to come back to the business, because my business also needs me."
The bright prospects identified in the McKinsey report have helped to generate a flood of investment into the consumer industry. As a result, Chairul's Carrefour stores have struggled to maintain market share against aggressive local rivals and foreign retailers such as South Korea's Lotte. The rapid penetration of convenience stores has also shrunk the share of hypermarkets in the modern retail industry from 27% in 2010 to 20% in 2015, according to Euromonitor, a research organization. The share of convenience stores rose to 49% during the period.
But competition is not Chairul's only problem. Economists say the global decline in commodity prices has cooled consumer optimism, pointing to a decline in car sales and weak demand for property in 2015. A recovery in the country's pace of economic growth, which has been slowing for the past four years, remains uncertain. The central bank recently revised down its growth estimate for gross domestic product, raising concerns over government plans to slash public spending.
However, Chairul's optimism on Indonesia's consumption-led growth prospects over the long term is unfazed. Transmart is designed to tap the income of middle class consumers with more money to spend on leisure and restaurants, reducing the group's dependence on its Carrefour stores.
"The money they collect from their jobs is more than [the] money they have to spend," he said of the middle class, citing Indonesia's so-called demographic bonus -- a rise in the proportion of young people that is expanding the working age population. "So the balance will go to [additional] spending and not to saving." He said consumer spending, which accounts for more than half of GDP, and the robust inflow of investment into the consumer industries will continue to drive economic growth.
As a symbol of Indonesian success, Chairul is carrying the country's growth prospects on his shoulders. "I love the country; I'm very idealist," he said. "I try to make the business follow my idealism." Idealism may be the reason why he is extremely careful in revealing his cards -- CT Corp.'s annual revenue is estimated at $3 billion, excluding the group's 24.6% stake in the national flag carrier, Garuda Indonesia, but information is scarce since most of his businesses are privately held.
Some of the largest retailers in Southeast Asia, including the Philippines' SM Investments and Thailand's CP All, are publicly traded. Chairul is aware that he needs to open up as he grows older. In July, CT Corp. announced a strategic partnership with Marubeni that was partly aimed at tapping the Japanese trading house's management skills.
Although he said he could work for another 16 years, he is making succession plans early. "This is the time for me to make the company, owned 100% by me, to become more institutionalized," he said. "With partners... you can't make decisions by yourself."
Widodo has also pledged to open up the economy to foreign investors, and such developments will eventually put Chairul's companies under the scrutiny of short-term investors. Proving the success of his latest bet on Indonesia's consumers will be the key to building investors' trust in his businesses, as well as in the Indonesian growth story he helped to design.