What Do Changes in Corporate Ownership in Indonesia Tell Us?

Abstract

This article documents the pattern of corporate ownership in Indonesia before and after the 1997–98 Asian financial crisis. We draw on an original dataset that identifies ultimate owners of the country’s 200 largest publicly listed corporations in 1996 and 2008, and supplement these data with additional information about unlisted firms. Corporate ownership and business–government relations in this period exhibited continuities as well as notable changes. Although family ownership remained the most prevalent form of ownership, there was considerable churning in the identities of the most powerful family owners. Listed state-owned corporations were more prominent after the crisis than before it, and foreign governments (particularly Singapore and Malaysia) substantially increased their ownership stakes in many of Indonesia’s largest corporations.

Tulisan ini mendokumentasikan pola kepemilikan korporasi di Indonesia sebelum dan sesudah krisis keuangan Asia pada 1997–98. Penulis menggunakan set data asli tahun 1996 dan 2008 untuk mengidentifikasikan pemilik 200 korporasi terbesar yang perusahaannya sudah terdaftar secara publik. Data ini kemudian dilengkapi dengan informasi tambahan mengenai perusahaan-perusahaan yang belum terdaftar. Kepemilikan korporasi dan hubungan pemerintah-pengusaha pada periode ini menunjukkan pola yang sama sekaligus juga perbedaan yang signifikan. Meskipun kepemilikan keluarga merupakan bentuk kepemilikan yang paling lazim, terdapat perputaran yang besar pada identitas dari para keluarga pemilik korporasi yang paling berpengaruh. Badan Usaha Milik Negara (BUMN) yang terdaftar di bursa menjadi lebih menonjol pasca krisis dibandingkan dengan sebelum krisis. Selain itu, pemerintah asing (terutama Singapura dan Malaysia) meningkatkan kepemilikannya secara substansial pada banyak korporasi terbesar Indonesia.

Keywords:

• corporate ownership
• business and government
• state-owned enterprises

JEL classification:

• G30
• G32

Notes

¹ As discussed below, many of Indonesia’s largest firms are members of informal business groups, locally called conglomerates.

² Sato (2004) updates Claessens, Djankov, and Lang’s (2000) data but uses a different methodology. Our sample differs from Sato’s because ownership was still fluctuating when Sato’s sample was created in 2000; many assets were still officially controlled by the government asset-restructuring holding company, the Indonesian Bank Restructuring Agency.

³ ‘Widely held’ refers to a company that does not have a single shareholder with more than a 10% stake. ‘Widely held corporation’ denotes when such an entity is a company’s ultimate owner. ‘Widely held financial’ denotes when the ultimate owner is a financial firm, such as a bank. For convenience, we use the terms ‘family owned’, ‘state owned’, and ‘widely held’ to describe the firms in these categories.

⁴ Claessens, Djankov, and Lang (2000) do not use the foreign-government category, but, given our data distribution, we find it important to distinguish domestic firms from firms owned by foreign governments.

⁵ Similar to our approach in calculating control rights, when cash-flow rights work through multiple channels, we summed those rights across all lines of ownership to reach our aggregate.

⁶ This measure also captured cross-holdings as defined by Claessens, Djankov, and Lang (2000)—namely, when firms hold stakes in one of their shareholders. We find even less evidence of cross-holding than those authors did in 1996, perhaps owing to our average firm size. Cross-holding within a business group may occur at a distance from the top of a pyramidal structure. Because we considered only the largest firms, many firms lower in the ownership structure with potential cross-ownership evaded our analysis.

⁷ Two caveats deserve mention. First, we increased the coverage of firm affiliates by including all directors, not only top executives. Second, we compiled political data for 1996 – before the financial crisis had had effects—whereas Faccio’s (2006) political data is from 2001. Together, these methodological differences explain why we observe more political connections for the earlier time period than Faccio (2006).

⁸ We also examined a 20% ownership cut-off, leading to a trivial difference from the data reported for the 10% cut-off.

⁹ As reported in the Jakarta Globe, 12 June 2014.

¹⁰ Based on audited figures for 2011, reported by the Ministry of State-Owned Enterprises (n.d., 121–31).

¹¹ The Bhakti group took over assets in the Bimantara group, formerly owned by Bambang Trihatmodjo, one of Soeharto’s sons. Bhakti Investama (PT MNC Investama Tbk, since 2013) is the holding company of Global Media, owned by Hary Tanoesoedibjo. Hary was linked to the Hanura political party, initially announcing his intentions to run for vice president in 2014 with former Soeharto-era general Wiranto. Hary resigned from Hanura when Wiranto endorsed Joko Widodo’s presidential bid, and openly supported rival candidate Prabowo Subianto (Warburton 2014). Some commissioners of Bhakti-related companies look like hold-overs, including Hary Djaja (director since 1989), Ratna Endang Soelistyawati (commissioner since 1995), Sutanto (chief of police, 2005–8) and Hendropriyono (head of the State Intelligence Agency [Badan Intelijen Negara], 2001–4).

¹² Listed companies counted as part of the group on the basis of common dominant shareholders as of 2008 were Astra International, Astra Agri Lestari, Astra Otoparts, Astra Graphia, Bank Permata, and Hero Supermarket.

¹³ The family is not in the top 10 (table 9) but was a major owner of large companies in both 1996 and 2008.

¹⁴ These changes fit the findings of another study that Indonesian firms ‘have difficulty reestablishing connections with a new government when their patron falls from power, leading closely connected firms to underperform under the new regime and subsequently to increase their foreign financing’ (Leuz and Oberholzer-Gee 2006). Our findings, however, suggest that other privileged firms of the pre-crisis era have re-established themselves.

¹⁵ These companies were Bank Artha Graha Internasional (with a market capitalisation of $39 million circa 2008) and Jakarta International Hotel & Development ($106 million circa 2008). Neither ranked in the top 20 family-owned listed firms in 2008, but they were in the top 200.

¹⁶ Peter Sondakh raised Rp 500 billion in 2012 by listing taxi operator Express Transindo.

¹⁷ The Soeryadjaya family had owned Indonesia’s second-largest conglomerate, the Astra group, but lost control to a group of Soeharto family associates in the early 1990s (Sato 1996).

¹⁸ Current vice president Jusuf Kalla, a former chair of Golkar, held ministerial positions in successive governments from 1999 and was also vice president in Susilo Bambang Yudhoyono’s 2004–9 administration.

¹⁹ See, for example, the coverage in Forbes Asia, 21 Jan. 2013.

²⁰ In 2014, CT Corp acquired the remaining 60% of Carrefour Indonesia from its foreign parent, to own own the company outright.

²¹ Jokowi, for example, appeared at a public event organised by the Riadys before his inauguration (Suara Pembaruan, 24 Aug. 2014).