withhelpof rupee’sfall profitsup Asiandynasties fileLippo Group are being forced to...
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FINANCIAL TIMES TUESDAY OCTOBER 15 2013 ★ 23 COMPANIES By James Crabtree in Mumbai Reliance Industries, India’s largest industrial company by revenue, has posted a modest increase in second- quarter net profit, thanks to higher margins in its petro- chemicals businesses and a sharp depreciation in the rupee. Billionaire Mukesh Ambani’s energy-focused conglomerate reported net profits of Rs54.9bn ($894m) in the period – up 1.5 per cent year-on-year, but it was the Mumbai-based group’s slowest rate of profit increase in 2013. Mr Ambani highlighted the performance of the pet- rochemicals division, one of the largest producers of pol- yester fibre and other mate- rials, which achieved unex- pectedly high margins. “Reliance’s first-half per- formance reflects the resil- ience of our business model in a period of volatility and uncertainty,” he said. “Our diversified and inte- grated petrochemicals busi- ness captured margins across segments, delivering near-record profit levels even as the domestic econ- omy slowed.” This broadly positive per- formance came despite the continued weak perform- ance of the group’s oil and gas exploration division, which has seen regulatory disagreements and delays relating to an eastern Indian gasfield it co-owns with BP. Reduced production meant that quarterly reve- nues at the exploration divi- sion fell 35 per cent year-on- year to Rs14.6bn, even as revenues for the wider group rose 14 per cent to pass Rs1tn for the first time. BP owns a one-third stake in the company’s KG-DG gasfield following a $7.2bn deal in 2011, but the part- nership has been further undermined by indications that India’s government may roll back a planned increase in the price they can charge for the gas. Negotiations over the pro- posed price rise – which both companies say is a necessary precondition to any further investment in improving output – have been marred by wrangling over the reasons behind recent production falls. Reliance and BP insist that the field’s difficulties are caused by geological complications, but India’s government has appointed independent consultants to review the field’s perform- ance. Reliance also reported a fall in margins at its oil refining and marketing operations, which provide around half of the group’s revenue and include its main Jamnagar facility in western India, the world’s largest oil refinery. See Lex Reliance prof its up with help of rupee’s fall GENERAL INDUSTRIALS Petrochemicals margins higher Revenue falls 35% in exploration unit Twelve years after Indone- sian tycoon James Riady suffered the ignominy of receiving the biggest US fine for breaching election campaign finance laws, his family recently marked its American comeback by acquiring the tallest sky- scraper in the western US, Los Angeles’ US Bank Tower, for $367.5m through OUE, a Singapore-listed entity that it controls. In the intervening period, the well-connected Riadys were forced to revamp their property, retail and banking empire in response to their US problems and Indone- sia’s 1997 financial crisis. This set them up to rake in big profits from the remarkable recovery that has transformed Indonesia from basket case into thriv- ing emerging market. Such trials and tribula- tions are nothing new for the Riadys who, like the other minority ethnic Chi- nese families that dominate large swaths of the Indone- sian economy, have demon- strated an ability to survive and thrive through boom times and crashes. But, in an ever more com- plex and competitive world, large Asian family busi- nesses such as the Riadys’ Lippo Group are being forced to professionalise at a rapid pace as they try to secure their future, bring- ing in outside expertise and working with a greater array of partners. Family patriarchs, such as 84-year-old Lippo founder Mochtar Riady, and his sons James and Stephen, face a tough battle to pull off this radical change, while ensuring a smooth transfer of power to the next generation. “In the past, many Asian family businesses used the same strategy, to accumu- late assets through credit and that’s why everyone got into trouble in 1997,” says a senior Lippo execu- tive, speaking on condition of anonymity. “We haven’t been perfect in the past and if we want to be around for another 100 years, we have to be more careful and professional.” The slide in the rupiah since May has revived memories of the last crisis, but the Riadys insist they are in stronger shape now, with better management and fewer unhedged foreign currency debts. Today, the Lippo Group, which is an amorphous col- lection of hundreds of com- panies rather than a single formal entity, has invest- ments in property, health- care, retail, technology and education across Asia. It works with a long list of international investors including Temasek, the Sin- gapore state investment fund, Mitsui, the Japanese conglomerate and CVC Cap- ital Partners, a private equity firm that trebled its money in three years by working with the Riadys on a buyout of their Matahari department store chain. Their eagerness to expand overseas, and their aggres- sive approach to business, has landed the Riadys in difficulties several times. The most painful was in 2001 when James was fined $8.6m by the US Depart- ment of Justice after admit- ting to breaching federal election laws restricting for- eign campaign financing by contributing to family friend Bill Clinton’s run for the White House. But the Riadys’ foreign forays from the US to South Korea, China and the Phil- ippines helped them to pre- pare for an era of tougher competition. Forbes estimates that Mochtar Riady is now the 11th richest man in Indone- sia, with a net worth of $2.2bn, while the Riadys’ Globe Asia magazine pre- dicts Lippo will earn reve- nues of $5.7bn this year, up from $4.8bn last year. The family has come a long way since Mochtar started his business career in the early 1950s, running a small bicycle shop in East Java, where he was born. It was only in 1954 when he moved to Jakarta, the capi- tal of newly independent Indonesia, that he was able to pursue his dream of becoming a banker. After developing good contacts in the Chinese trading community, he secured a position as a director of a struggling lender and helped to revital- ise its prospects – the first of a string of bank turn- rounds that made his name. It was after he was poached by Liem Sioe Liong, a crony of long- ruling dictator General Suharto, to run his Bank Central Asia that Mochtar made his fortune, increas- ing the lender’s assets by 390 times in 15 years. “He was never afraid to leave and start again, he was never sentimental,” says the senior Lippo execu- tive. “When he thought banking was no longer an area where family busi- nesses could compete, he sold Lippo bank to Khaz- anah [the Malaysian sover- eign wealth fund].” Lippo’s day-to-day inter- ests are now controlled by two of his children, James, who handles Indonesia, and Stephen, who is in charge of business in Singapore and the rest of Asia. The third generation of Riadys are also moving into key roles in the business, led by John, one of James’ sons, who is heavily involved in the family’s media and education com- panies. The family’s lack of sentimentality when it comes to business sits, some would say awkwardly, alongside their devout faith as evangelical Christians. James is an avid pro- moter of religious education and, in addition to the fam- ily’s flagship university near Jakarta, which exhorts its 12,0000 students to develop a “godly charac- ter”, and its private schools, they plan to establish 1,000 schools across Indonesia teaching a Christian curric- ulum to those with low incomes. John, a 28-year-old US- trained lawyer, says that he turned down the chance to work as an attorney in New York to help develop Indonesia through the fam- ily’s media and education concerns. “People of my generation have to think beyond the business and take owner- ship of the future of this country,” he says. But for the tight-knit Riadys – who live near Jakarta in their own Lippo Village development, and will be buried in their San Diego Hills cemetery, which incorporates a country club, helipad and Italian restau- rant – family is always likely to come first. Family first for Indonesia’s tight-knit Riadys Asian dynasties The clan faces new challenges as it seeks to thrive at the helm of Lippo, writes Ben Bland James Riady: was fined $8.6m in 2001 over US election campaign financing Bloomberg MORE ON FT.COM For the complete series examining the companies and their roles in the economy www.ft.com/ asiandynasties Legal Notices Legal Notices Contracts & Tenders Businesses for sale FT BUSINESS ......................................................... Classified Business Advertising UK: +44 20 7873 4909 Email: [email protected]
Transcript of withhelpof rupee’sfall profitsup Asiandynasties fileLippo Group are being forced to...
FINANCIAL TIMES TUESDAY OCTOBER 15 2013 ★ 23
COMPANIES
By James Crabtreein Mumbai
Reliance Industries, India’slargest industrial companyby revenue, has posted amodest increase in second-quarter net profit, thanks tohigher margins in its petro-chemicals businesses and asharp depreciation in therupee.
Billionaire MukeshAmbani’s energy-focusedconglomerate reported netprofits of Rs54.9bn ($894m)in the period – up 1.5 percent year-on-year, but itwas the Mumbai-basedgroup’s slowest rate ofprofit increase in 2013.
Mr Ambani highlightedthe performance of the pet-rochemicals division, one ofthe largest producers of pol-yester fibre and other mate-rials, which achieved unex-pectedly high margins.
“Reliance’s first-half per-formance reflects the resil-ience of our business modelin a period of volatility anduncertainty,” he said.
“Our diversified and inte-grated petrochemicals busi-ness captured marginsacross segments, deliveringnear-record profit levelseven as the domestic econ-omy slowed.”
This broadly positive per-formance came despite thecontinued weak perform-ance of the group’s oil and
gas exploration division,which has seen regulatorydisagreements and delaysrelating to an easternIndian gasfield it co-ownswith BP.
Reduced productionmeant that quarterly reve-nues at the exploration divi-sion fell 35 per cent year-on-year to Rs14.6bn, even asrevenues for the widergroup rose 14 per cent topass Rs1tn for the firsttime.
BP owns a one-third stakein the company’s KG-DGgasfield following a $7.2bndeal in 2011, but the part-nership has been furtherundermined by indicationsthat India’s governmentmay roll back a plannedincrease in the price theycan charge for the gas.
Negotiations over the pro-posed price rise – whichboth companies say is anecessary precondition toany further investment inimproving output – havebeen marred by wranglingover the reasons behindrecent production falls.
Reliance and BP insistthat the field’s difficultiesare caused by geologicalcomplications, but India’sgovernment has appointedindependent consultants toreview the field’s perform-ance.
Reliance also reported afall in margins at its oilrefining and marketingoperations, which providearound half of the group’srevenue and include itsmain Jamnagar facility inwestern India, the world’slargest oil refinery.
See Lex
Relianceprof its upwith help ofrupee’s fallGENERAL INDUSTRIALS
Petrochemicalsmargins higher
Revenue falls 35%in exploration unit
Twelve years after Indone-sian tycoon James Riadysuffered the ignominy ofreceiving the biggest USfine for breaching electioncampaign finance laws, hisfamily recently marked itsAmerican comeback byacquiring the tallest sky-scraper in the western US,Los Angeles’ US BankTower, for $367.5m throughOUE, a Singapore-listedentity that it controls.
In the intervening period,the well-connected Riadyswere forced to revamp theirproperty, retail and bankingempire in response to theirUS problems and Indone-sia’s 1997 financial crisis.
This set them up to rakein big profits from theremarkable recovery thathas transformed Indonesiafrom basket case into thriv-ing emerging market.
Such trials and tribula-tions are nothing new forthe Riadys who, like theother minority ethnic Chi-nese families that dominatelarge swaths of the Indone-sian economy, have demon-strated an ability to surviveand thrive through boomtimes and crashes.
But, in an ever more com-plex and competitive world,large Asian family busi-nesses such as the Riadys’Lippo Group are beingforced to professionalise ata rapid pace as they try tosecure their future, bring-ing in outside expertise andworking with a greaterarray of partners.
Family patriarchs, such
as 84-year-old Lippo founderMochtar Riady, and hissons James and Stephen,face a tough battle to pulloff this radical change,while ensuring a smoothtransfer of power to thenext generation.
“In the past, many Asianfamily businesses used thesame strategy, to accumu-late assets through creditand that’s why everyonegot into trouble in 1997,”says a senior Lippo execu-tive, speaking on conditionof anonymity.
“We haven’t been perfectin the past and if we wantto be around for another 100years, we have to be morecareful and professional.”
The slide in the rupiahsince May has revivedmemories of the last crisis,but the Riadys insist theyare in stronger shape now,with better managementand fewer unhedged foreigncurrency debts.
Today, the Lippo Group,which is an amorphous col-lection of hundreds of com-panies rather than a singleformal entity, has invest-ments in property, health-care, retail, technology andeducation across Asia.
It works with a long listof international investorsincluding Temasek, the Sin-gapore state investmentfund, Mitsui, the Japaneseconglomerate and CVC Cap-ital Partners, a privateequity firm that trebled itsmoney in three years byworking with the Riadys ona buyout of their Mataharidepartment store chain.
Their eagerness to expandoverseas, and their aggres-sive approach to business,has landed the Riadys indifficulties several times.The most painful was in2001 when James was fined$8.6m by the US Depart-ment of Justice after admit-ting to breaching federalelection laws restricting for-eign campaign financing bycontributing to familyfriend Bill Clinton’s run forthe White House.
But the Riadys’ foreignforays from the US to SouthKorea, China and the Phil-ippines helped them to pre-
pare for an era of toughercompetition.
Forbes estimates thatMochtar Riady is now the11th richest man in Indone-sia, with a net worth of$2.2bn, while the Riadys’Globe Asia magazine pre-dicts Lippo will earn reve-nues of $5.7bn this year, upfrom $4.8bn last year.
The family has come along way since Mochtarstarted his business careerin the early 1950s, runninga small bicycle shop in East
Java, where he was born. Itwas only in 1954 when hemoved to Jakarta, the capi-tal of newly independentIndonesia, that he was ableto pursue his dream ofbecoming a banker.
After developing goodcontacts in the Chinesetrading community, hesecured a position as adirector of a strugglinglender and helped to revital-ise its prospects – the firstof a string of bank turn-rounds that made his name.
It was after he waspoached by Liem SioeLiong, a crony of long-ruling dictator GeneralSuharto, to run his BankCentral Asia that Mochtarmade his fortune, increas-
ing the lender’s assets by390 times in 15 years.
“He was never afraid toleave and start again, hewas never sentimental,”says the senior Lippo execu-tive. “When he thoughtbanking was no longer anarea where family busi-nesses could compete, hesold Lippo bank to Khaz-anah [the Malaysian sover-eign wealth fund].”
Lippo’s day-to-day inter-ests are now controlled bytwo of his children, James,who handles Indonesia, andStephen, who is in chargeof business in Singaporeand the rest of Asia.
The third generation ofRiadys are also moving intokey roles in the business,led by John, one of James’sons, who is heavilyinvolved in the family’smedia and education com-panies. The family’s lack ofsentimentality when itcomes to business sits,some would say awkwardly,alongside their devout faithas evangelical Christians.
James is an avid pro-moter of religious educationand, in addition to the fam-ily’s flagship universitynear Jakarta, which exhortsits 12,0000 students todevelop a “godly charac-ter”, and its private schools,they plan to establish 1,000schools across Indonesiateaching a Christian curric-ulum to those with lowincomes.
John, a 28-year-old US-trained lawyer, says that heturned down the chance towork as an attorney inNew York to help developIndonesia through the fam-ily’s media and educationconcerns.
“People of my generationhave to think beyond thebusiness and take owner-ship of the future of thiscountry,” he says.
But for the tight-knitRiadys – who live nearJakarta in their own LippoVillage development, andwill be buried in their SanDiego Hills cemetery, whichincorporates a country club,helipad and Italian restau-rant – family is alwayslikely to come first.
Family first for Indonesia’s tightknit Riadys
Asian dynastiesThe clan faces newchallenges as itseeks to thrive atthe helm of Lippo,writes Ben Bland
James Riady: was fined $8.6m in 2001 over US election campaign financing Bloomberg
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