(This is the another version of Lasting Value, a story about The Hamami family, with additional data from Forbes Indonesia Richest List 2011 and update on ABM Investama plan to become publicly listed company).
Rachmat Mulyana Hamami has just arrived in his working room that morning, June 14. The two-storey high ceilings room is located in the penthouse floor of TMT 1, family owned new office building, which was expanded and completed in 2009. His family business Trakindo is based in Cilandak, a marine compound, build since early 1970s merely because Jakarta’s Governor Ali Sadikin asked his father to build a factory in the area. At the time, he pictures the place as in the middle of nowhere. It takes five years for the company to create lives in its surrounding. Before that happen it provide buses to pick-up their employees. Now the place is crowded. Some of the energy related companies are also there.
Not many know about his family business. Some analysts in the capital market that I talked to decline to give comments because the family’s company is unlisted yet. It create challenges in estimating the family net worth in regard putting it in the Indonesia 40 Richest List this year. The family never talked to the media before, but Muki–his nickname—eagerly spend four hours before us talking about his family and its business, the making of his family constitution, and family businesses around the world. To help make his point, he reels off names such as the Michelin family, whose relative still head the French tire company, or Japan’s Kikkoman soy sauce company, still headed by descendants of the original founders of 1603.
Muki was told to look at the family trust that his father set up with private bankers. The trust, using Anglo-Saxon language, was made in order to maintain the family business lasted for generations. It’s in the hand of second generation and 40 years in operation now. “My father always dreams to have his ‘baby’ at least lasted 100 years. Everybody has family business, but only few can stand for generations. So I’ve been searching all over the world to find how this family business can stay for generations. We, my self and my brother Bari Hamami, go to this all seminars and courses around the world and read books about family business. At the end of the day we find one angle that interesting for us, we call this family enterprise.”
It took four years for the Hamami family to make what they call later as the family constitution finished in 2008. Stages of discussion between family members were held to talk bluntly about the business they had, the founder’s vision, every one’s hope and role in the family, the company, and the philanthropy side that the family have been doing for years. The kind of talk which not common for Indonesia family but Muki says need to be done in order to make the constitution. Professor John L. Ward, family enterprise expert from Kellogg School of Management, acted as mediator who puts everything keeps in place every time the discussion tend to be emotional among family members.
Since the purpose was to be easily understands by family members, the hundreds of pages constitution consist with the family wording instead of legal wording. It regulates almost everything within the family, business, and philanthropy including regular meeting for them to gather and discuss things. Muki even called it the family corporate governance guidance. It content can be adjust and subject to change with 75% vote among members. Nevertheless they kept the old trust as another element of literal. Now, the Hamami become the role model for other family business in starting up its constitution.
Muki, 47, is the number three of four siblings. He is now the president director of PT Tiara Marga Trakindo, holding of 17 companies, which just going under restructuring three years ago. The group’s name consist with three words which literally means the crown’s tribe is Trakindo, their initial business. From previously the core of the family business, the Caterpillar heavy equipment distributor PT Trakindo Utama becoming one of Tiara Marga’s three sub holdings, among with PT Mahadana Dasha Utama and PT ABM Investama. The last two were just created in 2009 and plan to be the next motor for the group. Muki boast the group will book $3.2 billion revenue this year, from slightly above $2 billion in 2010. The business grows 25% per annum with EBITDA will be $500 million this year. It has zero debt until 2009, when he decided to leverage a bit ABM, where he is the president commissioner. He also plans to bring ABM to IPO by the end of this year.
After finish his study in UK and married with a Malaysian woman in there, instead of joint his family business, Muki prefer to pursue professional career in Standard Chartered Bank Plc, Leverton Plc in UK and Finning Ltd in Canada. Among his siblings, he claim himself has the most different character from his father. His father likes to create jobs to help people and he is very concern when it came to his employee rights. Now there are 2,500 permanent workers working for the family. Despite old age, his father, 81, still goes to the office every working day, 9 to 5 sharp. “Not like my father, I like to invest, buy and sell companies. I told him I want to enjoy life after 47.”
Later he realized the family needs him. His father suddenly lost his sight because of glaucoma attack in one Saturday morning in 1999 and ever since been blind. It happen when his father go forth and back to Singapore trying to find bank to restructure $118 million of the company’s debt. The stress contributes the illness. There were no banks available, so the family pay all the debt with their reserve and remained debt free since then.
Muki starts his career in Trakindo as the group credit controller. He became the president director of Trakindo in 2001. He handed over Trakindo leadership to Bari in 2009, the same time his sister Mivida create and head MahaDasha. His brother and sister had not been tempted to bring the company become public. Muki convince family that they will need to have share price just in case the later generation doesn’t want to continue running the business. “If they know the market price, they can easily sell it to their siblings or any family member, or the company could buy the stocks. That’s what in the end my father finally agree. So, what we do today is part of what we say in the family constitution”.
Muki’s father, Achmad Hadiat Kismet Hamami or known by his nick name Met, built Trakindo in 1970. Kismet was one of the navy’s pilot jet, but resign because he doesn’t like to see corruption in the work place. He then gives private math lesson to students at home. Going through family difficult times, little Muki and his siblings selling stick flavor ices (mambo ice) in their neighborhood in Kwitang. The Hamami is one of the few Jakarta native business family. To find out about the family condition, Soemitro Djojohadikoesoemo, the minister of seven departments at the time, is concern and offering Kismet work opportunity in the Indo Consult, the pioneer of Indonesia Investment Coordinating Board (BKPM), through his father-in-law Mamoen Soemadipraja. Both Sumitro and Mamoen was the dean in the Universitas Indonesia and tennis partner.
One of the companies that Met dealt with in his new job was Caterpillar. The heavy equipment producer was unhappy with its current dealer in Surabaya, who was doing little to promote the brand. Met saw an opportunity. Later on it wants to have an Indonesian partner, which have military background and business basic. Kismet was forced to have a business degree. He, who has the ability to speak in Dutch and English and had a degree from Netherland and UK, took a night course in Krisna Dwipayana University and another training in the US. He clinched the dealership. “Caterpillar at the time is very rare. The Caterpillar only provides the equipments, while the company own by my father. Within one year it starts selling,” recalls Muki. This year, Forbes estimate Met Hamami could worth $2.2 billion. He is making a debut in the Indonesia 40 Richest List at number 10 as the wealthiest newcomer.
It was about the perfect time for the industry set a growing record in the domestic market. The competition was also rise when William Soeryadjaya brought Komatsu into the country in 1972. His Astra group became the dealer for Japan’s Komatsu (a relationship that continues today). At the same year, oil and mining industry was booming. PT Freeport Indonesia, a unit of Freeport McMoRan Copper & Gold Inc, commenced its operation in Papua and turn out to be the biggest users of Caterpillar products. The logging industry booming in the next two years, and in 1977 another equipments were needed to open forestry area into housing and land expansion when the government encourage Javanese to move into sparsely populated islands such as Sumatra, Kalimantan, and Sulawesi in the transmigration program.
Caterpillar used to have 80% market share in the country, but eroded when the new competitor has more resources since it headquarter more focus on the greater Asia market unlike the US company. From previously handling the agricultural plantation such as coffee, Komatsu was more ready to enter the coal mining business. Today Komatsu has about half the market, and Caterpillar is number two with 25%. The remaining 25% is split between smaller competitors such as Hitachi (PT Hexindo Adiperkasa Tbk) and PT Intraco Penta. Indonesia remains, however, one of the largest international markets for both Komatsu and Caterpillar
Nevertheless, Muki believe the group will be able to boost it spot back into the top and book $6 billion revenue by 2015. United Tractors’ Corporate Secretary Sara K. Loebis says the company is aware with ABM plan to IPO. “It certainly a new challenge for us since nowadays many companies conduct vertical integration, but we will be strive to be always on top.”
To prepare the plan back in the crown, Muki and his siblings has set ammunitions for growth from its three sub holding business units. ABM is all the family energy business. The company name derives from abbreviation of four Hamami’s second generation name: Ana, Bari, Muki and Mivida which then change into Adiratna Bani Makmur but later shortened into ABM by Muki. It starts from integrated coal, all the way to power solution and everything in the middle like the port, tug & boat, and shipping. It has installed capacity for temporary power close to 1,000 MW, and is in the process of adding a couple of IPP projects. “My father doesn’t really know about ABM. It growth is going to be faster than Trakindo and the whole group because it really a sexy sector,” says Muki. At the moment he claim ABM is one third of the whole group, but it will be very big in the next five years.
ABM has audited its financial report in the last three years. In relation to it initial public offering (IPO) plan, ABM already submits documents to the Capital Market and Financial Institution Supervisory Agency (Bapepam-LK) using first quarter 2011 financial report. The agency has giving permission for the company to go public last month. It will become publicly listed company and having debut share trading in Indonesia Stock Exchange in December 6, 2011. ABMM an abbreviation from the second generation’s name will be the company’s stock code in the Indonesia Stock Exchange. PT Macquarie Capital Securities Indonesia acted as the lead underwriter, and PT Mandiri Sekuritas handle the domestic selling. Last week the underwriters claimed for having sell more than two billion shares from 550 million being offered, 0r 20% from the outstanding shares, Rp3.750 per unit. ABM will book Rp2.1 trillion fresh capital from selling it shares to public, where 70% will be used as the company and subsidiaries’s capital expenditure, 24% to pay debts, and 6% as working capital.
The other business, MahaDasha is a GDP related business. Basically it was created as the servicing unit for the group. It handling group’s IT business and employee buses, distribute non-Caterpillar heavy equipment, operate a leasing company, and own property assets across the country. Since Trakindo inception, the Group bought land in every city the company open it branch office and since the Group has more than 150 branch offices, the company has built up a considerable land holding. Now the family wants to maximize and monetize the land and other assets it own through Tiara Marga. But above all, everything in the family business was created because of Trakindo existence. “Like I said our bread and butter is heavy equipment and dealership,” says Muki. After loosing from Komatsu, he is confident the new Caterpillar’s business strategy, which will be focus on the Asia market, will bring the group to grow bigger. “Now I can fill time enjoy the investment side,” he says.
Stepping into the penthouse floor of Tiara Marga Trakindo’s headquarters you’ll immediately see unique ornament fully adorn the walls. It was everywhere in the alley, Muki’s working room, magnificent door-gate into the Bari’s office, conference room, and even rest room, but less in Mivida’s office.
The ornament shows combination of rotor and tractor’s wheel, small but plenty, line up just like printed batik. At some section it is embossed. All is dominated in copper color. “The design to represent how we make money and the money is from. It’s from selling tractors and the color to represent Freeport and Newmont, our biggest buyer, the copper and gold producer. Even though in a bad time, they keep buying from us,” says Muki.
The penthouse is where Muki, his father, his brother and sister each had an office room. There is also big conference room with long wooden table and two sets of couch. From the big glass window, the office surrounding including the marine compound can be seen. The two-storey high ceilings are more than dramatic; they also served a practical purpose of reducing the smell of cigarette and cigar smoke from the heavy smoker Muki and his father from bothering the other non-smokers as it is drawn up to the ceiling. Despite having different character, both have the same habit.
Muki wants to make sure the ownership and leadership transfer between generations goes smoothly just like the first to the second. He worries the process will be harder when the founder is no longer around. Therefore he feels now it is his and his siblings’ job to make sure the third generation, of which there are currently eight members, understand the concept of good stewardship as owners of a family business. Among other responsibilities, they should know how to analyze financial records, even if they lack a formal business degree. “The concept is you don’t need to work in the business to receive benefits from it. You don’t need to get involved but do need to be a good owner,” says Muki.
The family constitution has guidelines for every member to be trained in the business for one or two years right after they finish their education. After the training period, the children should gain additional experience by working outside the company for five years. The constitution also allows for opportunities for members who wish to do philanthropy instead of business. Met Hamami is well known for his philanthropy programs, and the family’s various philanthropic efforts spend sizeable sum per year. The constitution also outlines how to set a budget for philanthropy budget with approval from the family council. Regular family meetings are also held, which can run several days with time for formal talks as well as relaxation and bonding.
See also: interview with Albert Jan Thomassen, member of the Family Business Consulting Group and an expert on family business governance, a colleague off Professor John L. Ward.