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A Tale Of Two Siblings [dated]

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Dennis L. Fiddle

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Jun 15, 1997, 3:00:00 AM6/15/97
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A Tale Of Two Siblings

By Joe Studwell

[At Work Logo]Related Article: łBaby Wonder˛ And The 20 Cukong

How the elder son lost Astra, and why his father let it
happen

One of William Soeryadjaya's former executives puts the
verdict succinctly: "Many men have had their fortunes
squandered by their children after they die. Very few have
had to endure the loss of face while they are still alive."
The Astra chairman's fall came not so much from his failure
as a businessman, but from a father's commitment to his
elder and most-favored son, Edward (born in 1948).

In the mid-1980s Edward's Summa Group of companies embarked
on a meteoric expansion drive into Indonesian property and
financial services. Most of his Bank Summa's $1 billion in
assets, acquired by offering above-market interest rates,
was converted into loans to property and finance companies
controlled by Edward and his associates. By early last year
bankers estimated that more than $500 million of the loans
had turned bad.

Edward's misadventures were to consume the Soeryadjayas'
stake in Astra and much more. Last December, Bank Summa
became the first bank liquidation in Indonesian history.
Finally, in January, the Soeryadjayas, who had used 100
million of Astra's 242 million shares as collateral for
Summa loans, were forced to sell their controlling stake --
at a price less than one-third of Astra's peak value. The
YPM consortium as well as state banks and pension funds
became Astra's new owners (see previous story).

Throughout the crisis, William's second son, Edwin (born in
1949), could only be a spectator. After working for 13 years
at Astra to become the company's vice-president and
day-to-day manager, Edwin looked on as Astra's money bailed
out his elder brother. Edwin had never cost his father a
penny, yet the younger son's stated ambition to one day
chair Astra went with the wind.

A cautionary tale for any family business, the story of the
father and his two sons owes much to William's own
background. Despite his conservative image, William in
reality always regarded himself as a risk-taker, and it is
this self-image that colored his attitude toward his
children.

William is an eldest child, one of three brothers. The three
began Astra in 1957 by importing construction materials and
other commodities needed for then-President Sukarno's
post-independence infrastructure drive. Aided by a 1973
government ban on the import of finished cars, they moved
into the automotive market. Deals for joint-venture
factories were struck with Toyota, Daihatsu, Isuzu, Honda,
BMW, Peugeot and Renault. Today, Astra controls 60 percent
of the Indonesian car market and 70 percent of motorcycle
sales.

Though William always headed Astra, those present in the
company's early days remember that it was the elder of his
two younger brothers, Tjia Kian Tie (he died in 1979), who
nurtured the vital relationships with foreign companies.
Says Subagio Wirjoatmodjo, a former finance director of
Astra: "It was William's younger brother who (taught us) how
to deal with the Japanese."

William, by contrast, liked to play the role of deal-maker
and risk-taker. "He was quite aggressive when he was young,"
says Subagio. William likes to recall that Astra got into
autos because, in 1967, he suddenly found himself holding a
6 percent-a-month loan when a deal to import American
generators fell through. He bought 800 trucks instead and
reckons to have made a killing.

Such deals, however, were not Astra's staple. Most of its
millions have come from very ordinary joint-venture and
concession agreements, particularly with Toyota. In this
respect, the influence of the more measured Tjia Kian Tie
(he never took an Indonesian name) was crucial. In the view
of one Jakarta business analyst, Astra owes much of its
success to the fact that "William had a younger brother to
restrain him."

Edwin, however, never had the chance to restrain his elder
brother. Edward always appeared to his father to be his
natural successor. Says Subagio: "William has told me he
thinks Edward is like he was when he was young." Combining
intelligence with a forthright manner, the older son was
sent to school in Germany and became trilingual. He went on
to university in Munster, where his father bought him a
Porsche.

On the other hand, Edwin received an English-language
education and entered the University of Southern California
(USC) in Los Angeles. He was shy, retiring and didn't share
his brother's excited interest in business. He was the
tortoise to Edward's hare. What everyone forgot, however,
was that sometimes, slow and steady wins the race.

Despite great expectations, Edward's first business foray
was not a success. He started his career in the mid-1970s as
a salesman for Astra Graphia, a joint venture with Japanese
office-equipment maker Fuji-Xerox. Reported clashes with
company executives, however, may have contributed to his
decision to withdraw from active participation in the
company in the late 1970s.

The experience did not chasten Edward. He went off to Manila
to start a master's degree at the Asian Institute of
Management (AIM). At the same time, Edwin returned for his
master's at USC.

By 1979 the brothers made clear their career choices. Edwin
joined Astra. He spent five years learning how the company
operated, including more than a year in Japan working with
Toyota. The effort paid off. Says former Astra finance
director Subagio: "Edwin is trusted by the Japanese, by
Toyota, by the government."

Edward, meanwhile, was telling fellow AIM students that he
wanted to own a bank. With a $25,000 loan he duly set up
Summa International Bank Ltd., headquartered in Manila. A
year later he borrowed a further $320,000 from his father to
set up a Hong Kong deposit-taking company -- Summa
International Finance Co.

Trading on the Soeryadjaya name, he also raised $60 million
in credit lines. In a curious insight into what he thought
it involved to be an entrepreneur, he told the now-defunct
Billion magazine, "It was easy. Every time I approached a
bank I came away with between half a million and a million
dollars."

The money went into financial and property acquisitions,
including a Singapore brokerage (which subsequently failed).
When uncertainty about Hong Kong's reversion to Chinese rule
caused the colony's stock exchange to collapse in 1983,
Edward was heavily exposed.

His losses, though undisclosed, were heavy. Once again
William stepped in to save him. Edward walked away from the
mess, returning to Jakarta.

By the end of 1985, while Edward had as yet done nothing but
lose money, Edwin was moving into Astra's senior management.
During the period up to 1990 the younger son coordinated a
restructuring that made possible the company's public stock
offering. When the share issue took place in March 1990, it
was 25 times oversubscribed. Astra became one of Indonesia's
few blue-chip companies.

Though Edwin remained an unambitious businessman, he had
found a formula for success. According to Wilson Nababan,
president of Creative Information Services, Indonesia's
biggest credit-checking agency, Edwin nurtured a new
generation of top professionals at Astra. Edwin also stuck
by the Astra policy of encouraging pribumi managers instead
of ethnic Chinese. Unlike his brother, Edwin did not employ
his friends and, crucially, he was prepared to delegate
responsibility.

Back in Jakarta, Edward began his last, fateful adventure by
reactivating a company called PT Summa Surya, which would be
the umbrella for new property investments. For a time,
however, Edward's need for cash stymied his desire to put
those companies to work. It was not until late 1988 that he
could make his move. What he felt he needed was another
bank.

It came in the form of Bank Agung Asia, described by a Summa
executive as "a real backwater bank, like something out of
the 1930s." Purchased in May 1989, it was renamed Bank
Summa.

Over two years, Edward's bank increased its assets by an
average of more than $30 million every month to more than $1
billion. Using Bank Summa as a cash cow, Edward in little
more than two years made by one analyst's account "at least
30 purchases, major deals, and he did not tell William about
them." Edward bought land and property in Jakarta, in
Bandung in southern Java, and in Surabaya in the east,
putting an estimated $100 million into the latter city
alone. He acquired six hotels -- among them the Amandari in
Bali, Indonesia's most expensive -- a private hospital and a
building in London. He took over an ailing investment and
property company in Singapore called Sim Lim Investments and
joined the partnership to develop Singapore's Bugis Street
Junction.

Edward also made a deal to set up Indovina Bank, Vietnam's
first joint-venture bank, and worked with Nahdlatul Ulama,
Indonesia's biggest Muslim organization, to establish a
chain of rural banks. He joined with the French group
Pullman to develop hotels in Hanoi and Ho Chi Minh City. He
planned an elevated busway in Jakarta and entered a
consortium to construct a bridge to Madura, a large island
off the east coast of Java. The list goes on and on.

By late 1990 the Summa Group "became like a Christmas tree,
laden with ornaments," says one Jakarta stockbroker. Edward
was borrowing heavily from Bank Summa (Indonesian banking
sources are in no doubt that he was contravening central
bank guidelines on lending to group companies), from
Handelsbank, a small German bank he had bought in 1985, and
from local Jakarta banks. With Indonesia's traditionally
high interest rates (in 1992 around 25 percent; more than 20
percent in 1988), Edward was relying heavily on rapidly
rising property prices. Asked if local banks were lending to
Edward in the belief that William would bail out any
potential losses, a Soeryadjaya family member comments
laconically: "That was the problem."

Recalls a Summa joint-venture partner: "The eldest child was
regarded in some emotional but totally illogical way." The
differences between Edward and Edwin, by now Astra's
vice-president director, seemed obvious to everyone but
William. "Edwin had his feet on the ground," says the former
partner.

As William vacillated, the situation at Summa became ever
more complex. Whereas Edwin had always kept his friends out
of Astra, Edward had become mired in a nepotistic bog. "We
had a lot of cousins and nephews and in-laws here," says the
Summa executive. Adds a Soeryadjaya family member: "He has
cronies around him. And parasites, too."

The inevitable decline began at the end of 1990. Faced with
a runaway economy, the Indonesian government in the spring
of 1991 required state banks and state companies to buy
government certificates, thus creating a liquidity squeeze.

Despite Edwin's urging that his father act quickly to cut
Summa's losses, William continued to vacillate. It was not
until September 1991 that he finally dismissed Edward as
Summa Group chairman. Even then the administrator William
sent in, Hagianto Kumala, was unable to make any headway.
According to the Summa source, since Edward was still around
his friends would simply say to Kumala: "Who the hell are
you? We're dealing with Edward."

Bank Summa lost $287 million in 1991. Though William,
borrowing against 100 million Astra shares last May and
June, put $350 million into Summa, nothing was done to
tackle basic problems. Real estate investments were
depreciating in a falling market and producing no revenue,
but interest payments had to be made. Yet Edward resisted
selling assets. It was not until last July that William
seemed to grasp just how serious the situation was. He
resigned as Astra chairman and moved in to Summa himself.
But by then it was too late.

Three days before a Nov. 15 central bank deadline for a
fresh cash injection to bolster Bank Summa, rumors led to a
run on the bank, forcing its suspension. Since William had
pledged 100 million Astra shares against loans to Bank Summa
and confidence in the bank had collapsed, the Soeryadjayas'
loss of Astra became inevitable. William remained obsessed
with keeping Bank Summa afloat, but by Dec. 14 the central
bank had had enough. Bank Summa was ordered liquidated. In
bitter irony, it was Edwin who was left to negotiate Astra's
sell-off.

The list of creditors is daunting: Bank Summa's depositors
are owed $364 million, Bank Indonesia (the central bank)
$218 million, other banks $108 million, and a consortium of
banks that organized the paying off of Summa's smallest
depositors $64 million. The final disposition of Summa's
assets may take years.

Those who observed the affair from the outside drew an
obvious conclusion: In the late 20th century, billion-dollar
businesses are best not mortgaged on the emotional ties of
family. In Indonesia, however, this is all too often the
case. The indulgence shown to President Suharto's children
is hardly a state secret. The same is true of several large
post-independence conglomerates which reportedly lack
obviously competent inheritors. Analysts point to a single,
clear exception: Liem Sioe Liong.

The head of the Salim group, Indonesia's and Southeast
Asia's biggest conglomerate, Liem has made a highly
calculated decision about his company's future. The father
of three sons, he decided the youngest, Anthony, was the
most competent and duly groomed him. He was sent to the
London School of Economics where, by contrast with Edward
Soeryadjaya, he drove a Volkswagen. Says Soeryadjaya family
friend Sofjan Wanandi: "Liem Sioe Liong made a very strict
decision about who runs his business." He preferred Anthony
over Albert, the eldest son.

Unfortunately this message comes too late for William
Soeryadjaya. It is doubtful anyway whether he would have
listened. At the height of the Summa crisis, in May 1992, he
was still blaming Edward's woes not on personal fallibility,
but on Indonesia's economy. With Edwin at his side he told
an incredulous Astra shareholders meeting: "If there had
been no economic downturn, we think Edward would have become
a hero."

That Edwin, or anyone else in Indonesia, shares this view is
ex- tremely doubtful. And Edward? He is rumored to have
started a new trading company. Return To Main Article

------------------------------------------------------------

Copyright 1993 by Asia Inc. Ltd. All rights reserved.
Reproduction in any manner, in whole or in part, in English
or other languages, of text, photographs or illustrations,
without written permission from the publisher is prohibited.
This article originally appeared in the April 1993 issue of
ASIA, INC.

source: http://www.asia-inc.com/archive/1993/0493tale.html

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dfi...@mn.uswest.net (Dennis L. Fiddle)
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