Banker, empire builder: The story of Mr Mochtar Riady

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Quite a good read! Very apt since I am moving into the industry.

Originally appeared in The Business Times, 8October 2011

Indonesian tycoon Mochtar Riady looks back on a lifetime filled with adventure and accomplishment. By Vikram Khanna

IN his prepared remarks for a talk at NUS Business School (of which he is a major benefactor), Indonesian tycoon Mochtar Riady, quoted the Chinese philosopher Lao Tzu to sum up his management philosophy: ‘Trees that fill our embrace emerge from small sprouts, and a thousand mile journey always starts with the first step … Plan for the difficult while things are easy, and act on the great while it is still small.’
Mr Riady started small and went on to build a pan-Asian business empire with some US$11 billion worth of assets, spanning financial services, property, retail, information technology, natural resources and healthcare.

But he is first and foremost, by instinct and by passion, a banker. ‘I went into other areas only by chance,’ he says.

Banking was an ambition he harboured since he was a schoolboy. Speaking in Mandarin through an interpreter – though later he breaks into English – he recounts this childhood memory:

‘When I was in primary school in Indonesia, I had to pass a big building on my way from home to school. I always thought, oh, this building is so impressive and the people who work there look so elegant. But I don’t know that they do.’

‘When I graduated from school, I was already thinking about being a banker. My father said, you are unrealistic. The banking business is a rich man’s business, how can you do it? My answer was, the bank’s commodity is not money, it is trust. As long as I can have people’s trust, I can be a banker.’

‘So I asked my teacher about the building. He said it is a bank. I asked, what is a bank? He said, a bank lends people money and makes money from that. And I thought, maybe one day I can become a banker.’

‘So, when I graduated from school, I was already thinking about being a banker. My father said, you are unrealistic. The banking business is a rich man’s business, how can you do it? My answer was, the bank’s commodity is not money, it is trust. As long as I can have people’s trust, I can be a banker. My father said, you don’t have the trust either. I told my father: I can find some wealthy people who command trust to be my partners.’

‘So I spent three years to persuade some prominent business leaders in Jakarta to be my partners. Finally, my dream came true.’

In 1959, armed with just his dream and no banking experience, Mr Riady ventured forth. He and his partners managed to gain control of a small local bank. That was the beginning of a half-century-long business career that spanned multiple industries and continents and made him a household name in Indonesia.

Born in Malang, in East Java to a middle class Chinese family in 1929, Mr Riady’s life has been tumultuous, adventurous, opportunistic and rich in accomplishment. He has his life-story neatly mapped out in his mind.

‘My life has had four phases,’ he says, as we sit across each other in the Presidential Suite of the Mandarin Orchard Hotel – which is owned by Riady’s Lippo group, through its controlling interest in Overseas Union Enterprises (OUE), the group’s Singapore flagship.

‘Each phase spanned 20 years. The first was from 1930 to 1950. It was the time of the global economic depression; you know, I was born in the year of the great depression, but I was fortunate that I did not suffer as a result of that.’

He did not, however, have an easy childhood.

‘My grandfather in China was ill, so our father took us back to our home town,’ he recounts. ‘After my grandad passed away, we stayed back in China for a while. It was the warlord period and there was a lot of suffering.’

In 1935, Mr Riady’s father took the family back to Indonesia, which was then a Dutch colony. Four years later, the second world war began and the Japanese invaded the country. Little Mochtar spent most of his primary school years in the shadow of the war and the Japanese occupation.

After the second world war ended began Indonesia’s war of Independence against the Dutch. ‘I was expelled from Indonesia by the Dutch because I was involved in organising a movement against colonisation,’ he recalls. ‘So I went back to China.’

There, he enrolled in university in Nanjing. But China in the late 1940s was in the throes of political upheaval – a civil war was raging between the nationalists and the communists. His university years too, were traumatic. Soon after, Mr Riady returned again to the land of his birth.

‘Those first 20 years were very difficult,’ he reflects. ‘But because of that hardship, I became more resilient and learned how to overcome difficulties.’

In the second phase of Mr Riady’s life, spanning the years 1950-70, Indonesia became decolonised and had its own government, led by Sukarno. ‘This was the period of the emergence of the national economy in Indonesia, and I started to see opportunities to start my business,’ says Mr Riady. It was during this phase that he embarked on his banking career. His first significant venture was Bank Buana, where he took charge in 1966. (Bank Buana was taken over by Singapore’s UOB in 2004).

In the early 1970s, the Indonesian government wanted to consolidate the country’s fragmented banking sector and encouraged small banks to merge. Mr Riady and some of his partners – including his brother in law – raised capital and amalgamated several small banks to form Bank Panin in 1971. Within three years, its assets rose 20-fold, and it became one of Indonesia’s biggest private financial institutions. But Mr Riady’s biggest break came in 1975, when he partnered Indonesia’s then-richest tycoon Liem Sioe Liong aka Sudono Salim – the founder of the Salim group – and took charge of Bank Central Asia (BCA). ‘BCA started with only one office, 27 employees and total assets of not more than US$3 million equivalent,’ he recalls. ‘When I separated from Mr Liem, BCA was the largest private bank in Indonesia and the third largest commercial bank.’ BCA’s assets grew almost 390-fold over the fifteen years he was in charge, making Mr Riady a household name in Indonesia.

Then of course there was Lippo Bank, once owned by the Riady family, which was recapitalised after the Asian financial crisis of 1997. Mr Riady subsequently managed to regain control of the bank, which in 2005 was sold and later merged with CIMB Niaga Bank, controlled by Malaysia’s CIMB group.

Mr Riady looks back at his achievements as a banker with some pride. ‘Now BCA is the largest bank in Indonesia. Panin bank is number 6. Lippo Bank (now part of CIMB Niaga) is number 4. Bank Buana is number 9. Four major banks in Indonesia are my babies.’

During 1970-1990 – which Mr Riady considers the third phase of his career – the Lippo group started to spread beyond Indonesia. ‘I began to look at how I could turn Lippo into a globalised business,’ he says. He did something radical for an Indonesian businessman – even by today’s standards: ‘I hired 86 Americans into our group to introduce modern management methods. This was the globalisation of human resources.’

Business globalisation followed: Lippo ventured into Singapore, Hong Kong, the Philippines, Australia and the United States, and diversified into real estate, hotels, retail and healthcare, among other businesses.

In the US, the group serendipitiously ended up doing business in the state of Arkansas in the 1980s – when Bill Clinton was governor. The Riadys became friends with the young Mr Clinton, and later contributed to his successful presidential campaign in 1992. However, this contribution – because it came from a foreigner – caused a scandal in America, and the relationship cooled. When asked if he is still in touch with Mr Clinton, Mr Riady says, with a smile: ‘I think he is very busy. I also have to concentrate on my business.’

Investing in China

The highlight of the fourth phase of Mr Riady’s career, which spanned the years from 1990-2010, was, he says, the shift in the centre of gravity of the global economy from the West to the East, and particularly to China. He was early to see China’s rise. In an interview with Asiaweek magazine in 1995 – when China was going through a difficult time – he said: ‘China at the moment is terrible, but in another 10 years it will be incredible.’ His group initially invested in infrastructure, property and manufacturing in China. But now, he sees new opportunities.

‘In China and India alone, we anticipate a total population of about 500 million middle class people,’ he says. Two opportunities in particular interest him: the rising demand for services such as retail, healthcare, financial services and education; and for more natural resources and commodities. The Lippo group is now concentrating on these areas.

‘The businesses I got involved with were always linked with the transformation of the world,’ he says.

But Indonesia is still his main base. How does he see the transformation of Indonesia since the fall of Suharto in 1998?

‘During Suharto’s time, the economy was booming, but the politics was quite autocratic. After Suharto, the politics became more liberal and democratic, but the economy did not perform as well,’ he says. ‘But after more than 10 years of transformation, there are more equal opportunities for doing business in Indonesia now, and very good opportunities.

‘I have very high confidence in Indonesia’s future. It has the advantage of geographical location, abundant natural resources, a population of 240 million, a high proportion of which are young people.’

He does not believe that Indonesia’s freewheeling democracy will lead to instability and chaos. ‘Indonesians are basically moderate in nature,’ he says. ‘Social harmony will be maintained.’

An affable and avuncular figure, Mr Riady describes his own business style as more democratic than autocratic. He is very patient. ‘No business runs smoothly from the beginning,’ he says. ‘It takes some development and learning.’ He also puts a lot of emphasis on team building. ‘For me, the most important thing in a business is not the capital. It is building the right kind of team, especially a management that can work to overcome difficulties.’

Timing is everything

As a businessman, he has a reputation for a keen sense of timing – which has paid off repeatedly. ‘When I moved into Singapore five years ago, property prices were much lower than now. After I bought, less three years later, I sold at a higher price,’ he says. (Lippo’s OUE group had bought the freehold residential site at 21 Angullia Park for $228.1 million in December 2006 and sold it for $283 million in October 2009).

In the go-go years during the run up to the Asia crisis, the Lippo group took full advantage of the stock market boom. Between 1994-97 – the period when the boom was at its height – it raised some US$2.3 billion equivalent on the Jakarta stock exchange. Its heavy reliance on equity, rather than debt financing enabled the group to weather the Asian crisis better than other, more leveraged Asian conglomerates.

‘I always took certain steps before others,’ Mr Riady explains. ‘When the 1997 crisis started, a lot of people thought this would be a small crisis. But I thought it would be very very serious, with a significant impact.

‘I also think the current global financial crisis is very serious and will get worse. So during this period, it is better to play safe.’

He adds that if there is any business he can sell off ‘at a reasonable price’ he will do so. ‘And maybe one or two years later, I will buy them back at a cheaper price.’

‘Everything moves in cycles, up and down,’ he says, making a wave-like gesture with his hand. He is not sentimental about any of his businesses. ‘To me, everything is a commodity, you can buy or sell.’

Like many Asian tycoons, Mr Riady is a great believer in establishing connections and networks. In the United States, he befriended Bill Clinton and other luminaries of the Democratic party; in Hong Kong, he built close relationships with the Cheung Kong group led by Li Ka-Shing, and in China with the China Resources group. He has also generated much goodwill through generous acts of philanthropy; in Singapore, he has donated $21 million to NUS Business School and $5 million to the Singapore Management University. His family runs several charitable institutions in Indonesia, focusing mainly on the areas of health and education.

Like his two sons, James and Stephen, Mr Riady is a devout Christian. He has a humorous story about his conversion to the faith:

‘I once went to hear a preacher called Dr Steven Tong. At the time, he was preaching that every man is sinful. I thought, he doesn’t know me, that’s why he is saying every man is sinful.

‘At the end, the preacher asked the audience: ‘Who here has truthfully paid all their taxes, raise your hands. Nobody raised their hand. Then I realised that I am not a good man.

‘Then he asked a second question. ‘Among the men present here, who has never lied to his wife, raise your hand.’ Again nobody raised their hand. Then I realised I was a sinful man. Since then, I became a Christian.’

After he turned 60 in 1989, Mr Riady relinquished day to day management of his businesses to his sons. ‘The most important thing I taught them was how to build their own management teams,’ he says. ‘Up to now, they have had very good teams. I am fully confident they can manage very well.

‘But I am not fully retired,’ he adds. ‘I still watch. For every single unit of business in each company, I look at the standard operating procedure. And for each person, I focus on one simple thing: what is your duty and how do you do it. That’s all. I believe that as long as every person in a company understands very well what is their job and how to do it properly, the company will do very well.’

MOCHTAR RIADY

Founder and chairman, Lippo Group

Born in Malang, Indonesia, May 12, 1929. Now resides in Jakarta

Educated at Southeast University, Nanjing, China

Married with six children

Estimated net worth: US$730 million (Forbes, December 2010)

1959-1990 Career in banking. Headed Bank Buana, Panin Bank, Bank Central Asia

1950s Founded Lippo group in Indonesia

1980-present Managed Lippo Group’s expansion from Indonesia to Hong Kong, mainland China, Philippines, Singapore and South Korea