Business Times - From Rags to Us$2_8b Fortune - 7ap07

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7 April 2007Business Times SingaporeAuthor: Laurel TeoEnglish(c) 2007 Singapore Press Holdings Limited

From rags to US$2.8b fortune

More than a few eyebrows were raised last year when Sukanto Tanoto became therichest Indonesian on Forbes Asia's list. Who is this self-made tycoon? LAUREL TEOcatches up with him recently in Singapore, where he has been based for more than10 years

STRIDING into the quiet restaurant on the 60th floor of UOB Plaza, Sukanto Tanotorubs his arms as he directs his first words at the waitresses.

'What is the temperature here? Feels rather cold,' he quizzes them mildly in

Mandarin. They spring into action, murmuring a flurry of apologies. The thermostatappears to slide up by several degrees. Then a thin woollen vest materialises -fetched from his office 10 floors below.

Turning to BT as he settles down for the interview, he switches into fluent Englishand introduces himself crisply: 'Hi, I'm Tanoto.'

The 56-year-old has good reason to favour warm climes. After all, his family's US$8-billion business empire is built largely on turning palm fruit into oil, and trees intovarious pulp and paper products - resources that thrive particularly in the swelteringheat of the tropics.

One of the biggest jewels in his Rajah Garuda Mas (RGM) stable of companies is pulpand paper giant Asia Pacific Resources International (April), which he foundedbecause, as he likes to tell the story, it was simply logical.

Before the Indonesians jumped in a couple of decades ago, it was the Scandinaviansand Americans who dominated the pulp and paper industry. But Mr Tanoto graspedsomething crucial. Trees take about 60 years to mature in the cold European climate,about 25 to 30 years on American soil, and only six to seven years in Indonesia.

Simple logic

It doesn't take a genius to do the math: put a dollar in and you recoup the

investment in one sixth of the time - in Indonesia, he surmised. 'When I entered thepulp business 20 years ago, many people told me it was impossible! Who are you?How to play this big game? But the logic is very simple.

'I always say that the Scandinavians grow trees for their grandchildren, Americansgrow them for their children. Here in Indonesia, you grow trees for yourself,' he sayswith a chuckle.


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Rapid cost recovery aside, he also had an eye on future markets. 'I looked at China,India, 2 billion people at that time - half the world's population. When they becomeeconomically developed and need paper resources, where are the trees going tocome from?' Indonesia with its vast lands, warm weather and large workforce wouldbe ideal for the business, he decided.

It was the same canny eye for competitive advantage, coupled with a boldness inchallenging incumbents, that led him to start planting oil palm in Indonesia, back in1979 when the whole industry was practically in Malaysia. 'We have 10 timesMalaysia's population, which means 10 times the domestic market. And most of theirworkers are from Indonesia anyway.'

Since then, his privately-held Asian Agri has blossomed into one of the largest crudepalm oil producers and agro businesses in Asia, with more than 200,000 hectares oflargely oil palm and some rubber and cocoa plantations across South-east Asia.

From his colourful war stories, it is easy to distil the usual ingredients forentrepreneurial success: grit, wits and a dash of luck. But then he flashes a smile

and lets on a better-kept secret: his Chinese name. Born in the Sumatran city ofMedan on Christmas Day, 1949, the eldest of seven boys was named Chen Jianghe,after two of the greatest rivers in China - the Yangtze (Chang Jiang) and Yellow(Huang He) rivers.

The Chinese of course, believe that water brings wealth, says Mr Tanoto with achuckle. So it would seem, as he has managed to amass a personal fortune ofUS$2.8 billion, making him the richest in Indonesia, according to Forbes Asia lastyear.

He had an early start. His first foray into business began 40 years ago in 1966, whenhe was just 17.

Those were the tumultuous years when then-President Sukarno was unseated alongwith a nation-wide campaign launched to purge communists. When Suharto tookover the presidency, he shut down all local Chinese schools, putting an abrupt stopto the teenage Tanoto's education.

''I was studying in a Chinese school. I wasn't allowed to go to a national schoolbecause my parents held Chinese citizenship. I was considered a foreigner. I neverlearnt Bahasa Indonesia formally,' he recalls.

His father, an immigrant from Putien, Fujian province, was then running a three-manfirm in Medan supplying spare parts to oil and construction companies. The elderTanoto died soon after his son joined him at work, leaving the teenager to helm thefamily business.

The young Tanoto slogged for 16 hours each day, gradually moving beyond meretrading to snare contracts in building gas pipelines for multinationals. When the oilcrisis hit in 1972 and prices shot up, his clients expanded operations rapidly. Hiscontracts, in turn, swelled dramatically, reaping him his first millions (US dollars).


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With some capital in hand, he turned his mind to bigger businesses in 1973. Then 24,he noticed that Indonesia was exporting its logs, which were converted to plywoodabroad in countries like Japan and Taiwan, then imported back into Indonesia athigher costs. 'I thought this was ridiculous. We have the raw materials, why notmake plywood ourselves? The value-add would be much higher,' he reasons. But tobuild a factory, he had to seek out the minster for industries for a special permit.

The politician, an army general, was sceptical at first. 'He asked me: 'Why do youwant to make plywood? Everybody else is exporting the logs.' I told him that thiswould retain greater value-add within Indonesia and also create more jobs. Finally hesaid ok and told me to inform him when my factory was completed.'

When the young Tanoto reported back within 10 months - at least four monthsahead of schedule - the general was suitably impressed, to the point of alerting thecountry's top leader.

On Aug 7, 1975, an intrigued President Suharto descended on Medan with a team ofseven ministers in tow. 'Pak Harto asked me a lot of questions. How did I calculate

my costs, profits, and labour? Why did I want to build, not export?,' Mr Tanotorecounts.

After a round of inspection, the president launched the new plywood factory. Thuswas Rajah Garuda Mas (RGM) born, along with Tanoto's ties with Suharto - arelationship which some have hinted at darkly when they speculate on the tycoon'swealth. But he deftly dismisses any suggestions of having profited via 'specialtreatment'. 'My principle in business is never to rely on government subsidy. I mustbe able to compete in the free market, because my business is export-oriented. I'mcompeting against all the international companies,' he argues.

With all his business savvy, Mr Tanoto still regrets his interrupted education, and hehas been making up for lost time with alacrity. First, he taught himself English, wordby word using a Chinese-English dictionary against issues of three Americanmagazines - Life, Readers' Digest and Newsweek.

When his enterprise stabilised in the mid 1970s, he took off to Jakarta for businessclasses. Still unsatiated, he upgraded to Insead next. 'First time I went abroad, allmy classmates read the materials in half an hour. I took one and a half hours!' herecalls of his halting English then, and his time at the business school in Fountainbleu,France.

Now, he makes it an annual policy to attend management courses at top universities- Harvard, Stanford, Kellogg, Wharton, Carnegie Mellon - you name it, he has it. 'Icall it a 'management holiday',' he declares.

He is also a voracious reader, devouring magazines, history and economics books inmid-flight between business trips. Each time he visits a country, there is no suchthing as mere sight-seeing. He learns all he can about the place's history, cultureand politics, 'what makes it great, what not so great'.


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Social

responsibility

A major lesson he hasimbibed is the necessity ofcorporate socialresponsibility (CSR). One ofhis most controversialproblems was with his firstpulp company PT IndorayaUtama in Sumatra, whichbecame the target of aseries of violent communityprotests, amid allegations ofpollution and land disputesin the late 1990s. Thebusiness eventually shut

down.

In a previous interview with the Financial Times, Mr Tanoto admitted candidly: 'Atthat time (the Suharto era), we thought that poverty and society and taking care ofthe people was a government job . . . So we learnt the hard way, we made somemistakes. In the end we realised that when you come to a certain size of operation,you must have a clear sense of social responsibility.'

April, for instance, now has a well-entrenched CSR programme. It issues a detailedsustainability report every two years and works closely with NGOs like the WorldWildlife Fund (WWF) to protect high-conservation value forests in Riau, as well as

wild animals like elephants.

It funds schools around Kerinci, Riau, where its main operations are based, and hasalso established an integrated farming system to teach villagers more viable andsustainable alternatives to the slash-and-burn techniques of shifting cultivation.Those who graduate from the three-week courses are given seeds, cattle, fish andfertiliser as start-up capital.

The tycoon's personal Tanoto Foundation also donates extensively to reconstructionefforts in Aceh, scholarships for impoverished Indonesians, honorariums for teachersin rural areas as well as various other school-building projects.

Yet controversy continues to plague him. Right now he is embroiled in a long-runninghigh profile civil suit in Singapore. Singapore-registered Beckkett group, in which heis a shareholder, is suing Deutsche Bank and Indonesian firm PT Dianlia Setyamuktifor the return of its 40 per cent stake in Indonesia's biggest coal mine PT Adaro.

Back in Jakarta, he - along with some of the most well-to-do families - are oftenviewed with deep distrust by the local press, a legacy of perceived cronyism duringthe Suharto era. As recently as last year, some ran reports of him defaulting on local


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bank loans. He has since refuted them as 'baseless claims', backed by supportingstatements from the banks themselves.

Then in January, weekly magazine Tempo published a cover story alleging extensivetax evasion by his Asian Agri group. But the group has since published a statementpointing out that Tempo's story and materials were obtained from a former Asian

Agri employee, who was on the run after embezzling more than US$3 million fromthe company. He had tried to blackmail the company and it was Asian Agri thatalerted the police to his arrest. The company said it has since invited the relevantIndonesian authorities to review its books and was cooperating fully.

It does not help that Mr Tanoto has made Singapore his home and operating base forthe past 10 years or more, leading the Indonesian press to speculate on his legalstatus back in the country. He states categorically to BT that he retains hisIndonesian passport and citizenship and is no financial fugitive.

He has been in and out of Indonesia at least four times since the start of the year, hesays. Media interviews with him in the past two years have also been conducted at

Kerinci, Riau, where the April operations are.

It was for business as well as family reasons that he relocated in the mid-1990s hesays. The RGM group was expanding internationally and 'Singapore was a convenientplace to meet and conduct deals with our international clients', some of whom mighthave found it more difficult travelling to Indonesia.

He had also enrolled his two sons and two daughters in secondary schools here -ACS and Raffles Girls' School.

Asked how he feels about all the negative publicity, he is at first reluctant tocomment. But he relents on further probing. Smiling wryly, he says: 'Obviously I'm

disturbed. But you have to move forward. If you're too affected, then you getdistracted, and that may be exactly someone's intention for you. At the end of theday, I always believe the truth will come out by itself.'

Still, he has taken an added precaution. On advice of others, he has changed the lastcharacter of his Chinese name to a homonym meaning 'peace' instead of the original'river'. 'Too much money is not good anyway. Peace is better,' he muses.

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