WORLD RAINFOREST MOVEMENT
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NEWS FEATURE 26 September 1994
MALAYSIAN LOGGERS COME OUT OF THE WOODWORK
TIMBER BOOM DRIVES MALAYSIAN COMPANIES ONTO THE STOCK EXCHANGE
Sarawak's foremost logging companies are going global on a
massive scale. As prices for tropical timber have skyrocketed
Sarawak's privately owned timber companies are eagerly seeking
to take over companies listed on the stock exchange in order to
attract shareholder investment into their expanding business
empires. One result is that previously low-profile family-run
companies, which have shunned exposure in the press, have had to
publish more information about their ownership, assets and
profits. It also means that these companies are now open to
direct investment from northern capital enterprises active on the
Kuala Lumpur Stock Exchange.
Most of Sarawak's biggest logging companies gained their
concessions through political connections to Sarawak's ruling
families from the Malay-Melanau elite. The typical scam was for
senior politicians to grant concessions to themselves, their
families and cronies, who then went into business with Malaysian-
Chinese families with the capital and business know-how to
actually exploit the areas. Today, however, these so-called 'ali
baba' arrangements are going out of fashion - the reason being
that all the loggable areas of Sarawak have already been given
out.
As timber prices started to rise in the late 1980s, Sarawakian
companies began to look overseas to expand their operations.
Timber giant Samling Timbers acquired a 1.69 million hectare
concession in Guyana, in partnership with South Korea's trading
house Sung Kyong. The company, probably Sarawak's largest, now
has interest in Japan, Taiwan, South Korea, US and Canada. The
Rimbunan Hijau group flooded into Papua New Guinea, where it now
controls some 80% of the timber trade, and on into other parts
of the South Pacific. The WTK group expanded into Indonesia,
Papua New Guinea, Cambodia and Burma. China is now being looked
at by a number of the companies for further business
opportunities.
Capitalism on such a global scale requires more than political
allies and family connections to prosper. Accordingly, the timber
giants are seeking to acquire companies listed on the Kuala
Lumpur Stock Exchange as vehicles for their businesses.
Front runner in this game is the Rimbunan Hijau group, owned by
Sarawakian, Tiong Hiew King and Ahmad Rithauddeen, a Malay ex-
Minister of Defense. Tiong gained his advantage in Sarawak
through his close connections with the Chief Minister, Taib
Mahmud, who is also minister for forests. He shares a business,
Sarawak Plywood Sdn. Bhd., which holds a concession of 260,000
hectares and in which he has a controlling stake, with Taib's
sister. Tiong's company, the Rimbunan Hijau group, already
controls an estimated 1 million hectares in Sarawak and some 3
million hectares in Papua New Guinea. Forbes magazine's Chinese
edition estimates his *net* worth at US$ 800 million. His
operations include a US$58.5 million soft-wood plantation
development in New Zealand, a sawmill in Shanghai, a cattle ranch
in Australia, property in Singapore, as well as interests in
banking, newspapers and oil-palm plantations.
Despite Rimbunan Hijau's political protection - Tiong is also
close friends with Deputy Chief Minister Wong Soon Kai - Rimbunan
Hijau has been caught for tax evasion, the Asian Wall Street
Journal has reported. Moreover, the Tiong family's patronage by
Prime Minister Mahathir Mohamad was strained early this year,
when Tiong opened a new optical fibre company in Kuala Lumpur in
partnership with the Prime Ministers' sons - Mukhriz, Mukhzani
and Mirzan. The elite connections won the company 'pioneer
status', entitling it to a five year corporate tax holiday, but
despite lavish investments the company has failed to turn a
profit. The Asian Wall Street Journal hints that relations
between Mahahtir and Tiong have been strained by the business.
In July this year Rimbunan Hijau transferred ownership of its
flagship plywood operation, Jaya Tiasa Plywood, to Berjaya
Textiles, in exchange for 348.3 million shares in Berjaya
Textiles, giving the Tiong family an 83% stake in the company.
Rimbunan Hijau now hopes to complete the take over through a
reverse buy out, which if completed will make Berjaya Textiles
little more than a vehicle for Rimbunan Hijau's timber business.
If the deal goes through, Berjaya Textiles also intends to take
over Rimbunan Hijau Plywood for a further US$55.3 million in
cash. The deal will make Berjaya Textiles, which two years ago
had almost no experience in the timber industry, into one of the
largest timber companies on the Kuala Lumpur Stock Exchange with
a total plywood production capacity of 50,000 cubic metres per
month! Rimbunan Hijau gains two ways from the deal. Because
Berjaya Textiles is a listed company on the stock exchanges it
can hope to fund future investments by selling stocks and it can
also captalise the massive new timber operations that Berjaya is
building up in the Solomons, Suriname and Guyana.
Malaysian billionaire, Vincent Tan Chee Yioun (who enjoys close
connections with Malaysian premier, Mahathir Mohamad), head of
the Malaysian transnational corporation, Berjaya Corporation
(Malaysia) Bhd., is still pressing hard for a 400,000 hectare
concession in the New River/Upper Berbice forests of Guyana. A
letter of intent was handed to the Guyanese Government in early
August. The offer, which is presently also being reviewed by the
World Bank, is believed to total some US$100 million and includes
investment in a large hotel complex. Berjaya is in the process
of securing a similar concession, rumoured to enclose 1 million
hectares on the other side of Courentyne river in neighbouring
Suriname. Both deals would give Berjaya/ Rimbunan Hijau access
to the expanding tarriff-protected CARICOM market. The Berjaya
Group is also moving into North America by buying a 60% stake in
Canada's Taiga Forest Products Ltd. The deal will give it an
entree into the US wholesale building products distribution
market and make it the main competitor to MacMillan Bloedel, the
North American integrated forest products giant. In the Solomon
Islands, Berjaya, through its wholly owned subsidiary, Berjaya
Group (Cayman) Ltd, has expanded its operations by acquiring for
cash a 100% stake in Star Harbour Timber Company Ltd. Star
Harbour has already got a 45,000 hectare concession. Berjaya
hopes the concession area will be expanded to 600,000 hectares
in exchange for guarantees of inward investment into the
Solomons.
Rimbunan Hijau also owns a 40% share in Limbang Trading (Limbang)
Sdn. Bhd., the other 55% of which is owned by Sarawak's Minister
for Environment and Tourism, James Wong Kim Min, through his 100%
owned Limbang Trading Co. Sdn. Bhd., which has a 310,000 hectares
concession in Sarawak until 2009. Limbang, along with two other
of Wong's ventures, Global Minerals, a coal mine on the middle
Rajang, and New Orchid Plaza, a property development in Johor
Baru, is seeking listing on the Kuala Lumpur Stock Exchange by
buying into PanGlobal Equities another old textile company.
The Samling Group, owned by Yaw Teck Seng, is following suit. The
company which controls about 1.5 million hectares in Sarawak
until 2013 is seeking listing through three companies, Mun Boong,
Glenealy Plantations and Lingui Developments Bhd. By transferring
its two main plywood operations - Samling Plywood (Baramas) and
Samling Plywood (Lawas) to Glenealy, Samling now has a 52%
controlling stake in the listed company. Samling has also
transferred its third main asset, 40%-owned Samling Plywood
(Bintulu) to Lingui Developments Bhd. in which the holding
company Samling Corporation already holds 32% of the shares. By
also transferring to Lingui its 70%-owned logging contractor
company Tamex Timber, which logs the Samling Plywood (Bintulu)
concession and four other concessions, Samling has acquired a 41%
stake in Lingui. In September this year, Lingui bought a 58%
majority stake in Glenealy taking it into the top league of
corporate giants with massive cash assets.
Investors expect the more secretive Sarawakian logging giants
KTS, owned by Lau Hui Kang, and Shin Yang owned by Lim Chiong Ho,
to make similar moves into the stock exchange in the near future.
Smaller Malaysian enterprises have also gained listing on the
Kuala Lumpur Stock Exchange. Ambogo Sawmill Pty Ltd registered
in Papua New Guinea is being taken over by listed company Kemayan
Oil Palm Bhd though its subsidiary Coral-Quest (M) Sdn Bhd.
Ambogo, which already holds a 24,000 hectare concession expects
to acquire a further 202,000 hectares in Papua New Guinea
shortly. Usama, which holds timber rights to 355,000 hectares in
the Kapit Division of Sarawak and owns a sawmill, has been bought
out by listed company Pacific Chemicals Bhd., in turn owned by
Sarawak Chief Minister Taib Mahmud's sons, through their company
Majaharta Sdn. Bhd., and Ting Pek Khiing, owner of the massive
company Ekran which has just gained the contract to build the
2400 Megawatt Bakun dam on the Upper Rajang.
Ting's Ekran is also a timber based enterprise, which expanded
into prefabricated buildings through its subsidiary Woodhouse
Sdn. Bhd. and then plantations, port-construction and golf
courses. It hit the big time in 1991 with the rapid construction
of a hotel complex on Langkawi island in time for an airshow that
was a pet project of Prime Minister Mahathir Mohamad. The frantic
building project, pushed through in opposition to local
villagers, whose lands were acquired by dubious means, won him
cordial relations with the Prime Minister and former finance
minister Tun Dain Zainuddin. Ekran was listed on the Kuala Lumpur
Stock Exchange in 1992. It has current massive hotel and property
development programme's in Langkawi, Hainan island in China and
Samal Island in the Philippines.
The contract to build Bakun now allows Ekran to clearcut some
80,000 hectares of timber in the reservoir area. Most of this
timber is to be exported as raw logs but some will also be
processed by Pacific Chemicals' newly acquired company Usama and
may net Ekran a *profit* of around US$ 385 million. These and
other benefits are likely to be tax-free to offset the costs of
the ambitious Bakun dam project, estimated at US$5.8 billion.
Ting is confident that 60% of the capital can be raised
nationally. Canadian, Brazilian, German and Scandinavian
companies are all being invited to bid for specialist contracts.
Another Malaysian logging company that has gone global is Aokam
Perdana, owned by Teh Soon Seng from the North Borneo state of
Sabah. Teh teamed up with his Malay partner, Samsudin Abu Hassan,
a protege of ex-finance minister Daim Zainuddin, when he took
over Aokam Perdana, an ailing tin mining company, in 1990 in a
reverse buy out and thus gained listing on the Kuala Lumpur Stock
Exchange. About the same time, Sabah was banned from exporting
raw logs, putting heavy pressure on the timber industry to invest
in downstream processing. Teh has emerged as a major
international timber magnate with massive plywood operations,
while Aokam Perdana has become Southeast Asia's largest producer
of reconstituted-wood moldings. Recently, Teh expanded his timber
operations in China - where he already has lucrative slot-machine
businesses - by constructing another plywood and reconstituted
wood factory, using a mix of temperate softwood and Malaysian
hardwoods. Aokam now has shares worth US$1.6 billion, including
recent Eurobonds worth US$135 million, making it the region's
second largest timber company after Indonesia's Barito Pacific
and is closely conected to another big Malaysian timber company
Idris Hydraulic, which holds a 166,000 hectare concession on
Sabah. Idris Hydraulic is now set to take a 30% share in Aokam's
plywood business in exchange for giving Aokam access to more of
its concessions.
Indonesian timber companies are also moving on to the Kuala
Lumpur Stock Exchange. In June 1994, Prajogo Pangestu Indonesia's
richest timber tycoon, sealed a US$ 1 billion deal to inject some
of his timber assets into te Malaysian listed company
Construction and Supply House Bhd. (CASH). Under the deal and in
exchange for US$ 270 million in shares, Prajogo will pass three
of his unlisted assets over to CASH - a small plywood mill from
Sarawak, a sawmill and 98,000 hectare concession in Papua New
Guinea and an 85% stake in Nantong Plywood Industry, which
manufactures in China. He will also inject 30% of his Jakarta-
listed flagship company Barito Pacific Timber into CASH, for
US$135 million in cash and US$595 million in stocks and bonds
issued by the Malaysian firm, giving Prajogo a total of 64% of
CASH's shares. Prajogo, who has a 40% *personal* stake in Barito
Pacific is in a phase of rapid expansion. He already controls
nearly one fifth of the world's plywod trade, according to
Asiaweek, and holds no less than 5.5 million hectares of
concessions - only half of these in Barito. He needs cash and
capital to build a planned 500,000 ton pulp mill in Sumatra with
Japanese partners, Nippon Paper and Marubeni, and plans further
plywood and pulp mill expansion in Malaysia as scope for growth
in Indonesia is frustrated by a 12 million cubic metre ceiling
on national plywood producion imposed by the Government. In
September Indonesian Forest Minister Djamaluddin shocked Barito
stock holders by announcing he was demanding that the Government
be granted 49% equity in recently floated Barito Pacific in
exchange for a renewal of the company's concessions. The
Government, Djamaluddin told journalists, wanted to control the
company's logging as in the past 'Barito has done considerable
damage to forests under its control'.
All this is good news for Malaysian Primary Industries Minister
Lim Keng Yaik who wants Malaysia to become the world leader in
timber products businesses. The Kuala Lumpur exchange is all set
to be *the* place to deal in timber stocks for the rest of the
1990s.
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For further information contact: Marcus Colchester, World
Rainforest Movement, 8 Chapel Row, Chadlington, OX7 3NA, England
Tel: 01608 676691 Fax:+44 1608 676743 Email: wrm@gn.apc.org
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