Investing during Economic Downturns: PT Astra International Tbk.
Updated: May 5, 2020
Fortune favors the brave with clear objectives and rigorous execution.
Started as a small grocery trading company in 1957, PT Astra International Tbk. (“Astra”) is the largest listed conglomerate in Indonesia with key business pillars in automotive, financial services, heavy equipment, agriculture, infrastructure, ICT, and real estate industries. That said, Astra is perhaps best-known as the largest independent automotive group in the Southeast Asia.
Throughout the history, the company has always been recognized internationally and domestically as the best-run company in Indonesia in terms of corporate performance, management leadership, good corporate governance (GCG), investor relations, and corporate social responsibility (CSR) program.
When Astra went public in 1990, the company was the sole distributor of brand-name automobiles: Toyota, Isuzu, Daihatsu, BMW, Peugeot, Nissan, Komatsu, Fiat, and Honda motorcycles. In later years, the motorcycle business proved to be crucial as Indonesia was emerging as the 3rd largest motorcycle market in the world.
In 1996, after a change in major shareholders, Astra undertook a massive expansion program investing more than US$800M for its component production to boost the technological scope of its automotive production in order to create a national automotive brand without the technology know-how from its Japanese partners. The main hurdle, however, was Astra’s exclusive agency contracts barred it from exporting its production beyond Indonesia. Additionally, the aggressive expansion to diversified industries placed the company deeply in debt, largely in foreign-denominated debt.
The 1997 Asian financial crisis drastically devaluated Indonesia Rupiah leaving Astra with US$2B in foreign debt that had come due. The financial crisis also slipped Indonesia into recession reducing the demand of automobiles and creating a net loss of approximately US$200M by 1998. It was during this period that the existing major shareholders placed their 45% stake in Astra under the control of the Indonesian Bank Restructuring Agency (IBRA), which was in charge of disposing assets seized after the collapse of the country’s banks. During this period, the company managed to restructure a large part of its debts to a seven-year period. With Indonesia officially entered the ASEAN Free-Trade Area, Astra faced a new threat as it was less expensive to import automobiles than to manufacture in Indonesia.
In 1999, Astra’s key business units include automotive, financial services, heavy equipment, agriculture, infrastructure, ICT, and forestry industries. While the amount generated from each business unit generated substantial value to Astra, the core business unit has always been in automotive industry accounting to more than three quarters of its total revenue. This business unit covers the entire value chain from upstream of auto parts manufacturing and importing, midstream of engine and car assembly, to downstream of distribution and after sales services. The company employed more than 95,000 people nationwide.
In 2000, A consortium led by Cycle & Carriage (“C&C”) acquired 41.1% of Astra for US$506M valuing the company at US$1.23B during this economic downturn. The consortium consisted of C&C, Lazard Asia Fund, Batavia Investment Management, JP Morgan International (“JPM”), Government of Singapore Investment Corporation (“GIC”). C&C’s stake of 24.9% was worth US$310M. Astra’s market share for automotive was approximately 50.3%.
The new Astra decided to focus on its distribution operations and started to phase out some of its automobile and component manufacturing operations. The company also restructured its operations, slashing its payrolls, and divested numerous holdings in an effort to pay debt.
In the same year, C&C increased its stake by 6.4% to 31.3% for US$78.4M from 2 consortium partners which decided to dispose the investment. Astra’s performance fell by >25% in the first half of 2000 even with the sales recovery due to the devaluation of Rupiah, this trend continued over the next 2 years. However, as automobile sales in Indonesia tripled compared to 1999, Astra managed to slowly get back to its feet.
In 2001, as Astra’s market capitalization drop significantly to US$485M, C&C wrote off the value of Astra to US$13.7M of its books from the lost of goodwill. Astra’s automobiles sales continued to improve while its market share further dropped to 46.2%.
In 2002, as Astra’s sales role by 19% in the first-half of the year while its market share further dropped to 42.7%. This year was particularly hard for Astra due to the 2002 Bali bombing accident forcing Astra to restructure its debt again. However, Astra managed to reduce its US$2B foreign debt to US$800M. Meanwhile, C&C effectively became the subsidiary of Jardine Strategic after increasing its stake to over 50%. Taking a long-term approach, Jardine continued its effort to turn Astra around.
In 2003, Astra managed to raise more than US$158M through a rights issue at 51.4% discount from its market price to service its debts, including US$80M from C&C boosting its shareholding to 34.3%. C&C further increased its stake to 37.17% by the end of the year. As on the year, Astra was represented as one of the three business pillars of C&C with a total market capitalization of US$2.37B.
In 2004, Jardine Cycle & Carriage (“JC&C”), the renamed entity of C&C, boosted its stake to 47.21% in Astra. This coincided with the increase of Astra’s market capitalization to US$4.24B due to the low debt-to-equity (D/E) ratio as well as the stability of the Indonesian Rupiah. It was widely agreed among corporate leaders that the success was possible due to extensive strategy planning with clear objectives and intensive execution over the years.
In 2005, JC&C increased its stake to 50.11% effectively making Astra as a subsidiary. Additionally, Astra became its single-biggest contributor to JC&C’s earnings for the year. In this eventful year, Astra managed to get back to its feet after surpassing its pre-1997 sales with a market capitalization of US$4.41B.
In 2019, Astra’s market capitalization was US$19.43B valuing JC&C’s 50.11% stake for US$9.74B. The ROI of the investment was estimated to be more than 12 times. Astra International more than 237 subsidiaries and associates spanning over 7 industries employing more than 200,000 employees.
* JC&C’s initial investment was US$387M for 31.3% in Sep 2000. At the end of the year, there is a slight reduction of 0.38% and the sell price is unknown. The gain from this sell is assumed to be negligible due to the low number of shares compared to the initial investment. In the subsequent years, the value invested and gained from the buying and selling of shares are also assumed to be negligible as the transactions involved low number of shares and happened at historically low market price.
** As the investment happened at unknown price, it is assumed at the additional investments were done at fair market value.