Lately in the media there are news that Koperasi Cipaganti Karya Graha
Persada, or abbreviated as Koperasi
Cipaganti (KC) only (literally meaning Cipaganti Cooperative, or Cipaganti
Union), began having difficulties in paying monthly interest/yield to its
investors, and of course these investors began to worried. Some peope think
that a company listed on the Stock Exchange, namely Cipaganti Citra Graha (CPGT) is the same as KC, but it's not.
Anyway, let's learn more about this case, is it just another fraud thing?
Koperasi Cipaganti, hereinafter referred to as 'KC', is one of the most
prominent cooperatives in Indonesia. What is meant by ‘cooperative’ (or union) in
Indonesia is a legal entity that has
permission (from the Ministry of Cooperatives of Republic of Indonesia) to
raise funds from the public, where the funds will be used to finance certain
businesses. If you want to join the KC, for example, then you would sign some
sort of agreement before a notary that you have joined the KC, and that you
will deposit some funds to be managed by KC on certain business, and that you
will receive monthly interest.
Cooperative is a legal entity that is much simpler than limited liability
companies (Perseroan Terbatas/PT), but still could obtain funding from external
parties. If you have a PT, then you can apply for a loan to the bank, issuing
shares, or issuing bonds, through that PT. However, the process is not that easy.
When you want to borrow some funds to the bank, for example, then you must
provide an asset as collateral, and your PT should have been in operation for
several years and has a proven track record of financial performance.
However, cooperatives are different. If you manage a cooperative, then as
long as you can convince potential investors to place their funds into the
cooperative, then holaa.. you got the money, and that’s legal! You do not need
to give any collateral to the investors. All you have to do is to pay the
yield/interest as promised.
The concept of cooperative is actually an alternative to any person or
group of people who need funds/capital to expand a business venture, but do not
have access to the bank or capital markets (if they want to IPO). So with this
cooperative system, an entrepreneur can obtain capital or loan from his own
relatives/partners, in which the funds are placed in an entity called the cooperative.
This cooperative is considered as 'belong to all stakeholders', both investors
and managers (of the funds or assets of the cooperative), although in fact it
was only the manager who have access to the funds. The passive investors can
not simply withdraw the funds, or sell the assets of the cooperative, because it
was the responsibility of the managers.
The Weakness of Cooperative Systems
As a stock investor, I never interested to put investment in cooperatives,
either KC or the other, because: First, I've never heard that an investor
become rich from the cooperative. In the stock market, there are stories of
huge success, but at the cooperative?
Second, when a company needs funds to expand the business, then the company
will be clearly specifies how much the funds are needed, and about the usage of
the funds, then they can apply for a loan to the bank, issuing shares, or
issuing bonds. When the funds have been collected, then that's it, the event of
fundraising is finished (company no longer trying to raise funds), and then the
company can focus on business development using funds that had been collected
earlier. For example, if you go buy shares on an IPO, and it turns out that the
number of shares available are less than you want to buy, then the company in
question will not issue new shares or raise the price of the shares, but your
excess money will be refunded (hence there is the term of ‘oversubscribed’).
While cooperative? I don’t know about their business activities, but what
is clear that their fundraising activities are never finished, as they’re
continue to receive new funds. For example in KC, until now they are still
accepting new investors, or receiving the additional capital from existing
investors. The question is, when KC was initially need Rp100 billion to finance
their coal business, for example, then when the funds collected from the public
was more than that, say reached Rp150 billion, then what about the excess of
Rp50 billion? As for finding other business opportunities, it is not easy, is
it?
And this thing reminds me to the Ponzi
Scheme again. If you check the history, the creator of the scheme, namely Charles Ponzi, was accidentally
creating the scheme. In 1918, Charles, who was working at a grocery store in
Boston, United States, received a letter from a company in Spain who asked him
to send a catalog of products that are sold at his store. Inside the envelope,
Charles found a coupon called international reply coupon (IRC), which can be
exchanged with a piece of stamp. The Spanish Company sent the IRC coupon so
that Charles can exchange the coupon for a stamp, so he does not need to spend
any money to send the requested catalog into Spain.
Interestingly, when Charles went to the Post Office to exchange the coupon,
it turns out that he received several stamps, while he only need one. The event
of First World War causes the difference in value between the cost of postal
delivery in Europe and United States, where a piece of IRC coupon can only
obtain a piece of stamp in Italy or Spain, but in America, a piece of coupon
can be exchanged with a number of stamps. As a result, Charles obtaining some
cash when selling the unused stamps.
Charles soon realized that he had just discovered a business opportunity
here. He went to his friends to borrow money, and promised them that he would
return it within 90 days, plus interest. The money is used to buy IRC coupons from
Spain, the coupons are then exchanged
for stamps in America, then the stamps were sold to make profit of several
times. Charles managed to borrow money of US$ 1,250, in which he promised to
give US$ 750 as interest. And in just the next 90 days, he was actually paying
a total of US$ 2,000 to his friends.
And shortly afterward, the news about the 'investment opportunity' is booming.
Charles had his friends lend the money back to him, even with a larger amount,
including invite others to join. So Charles receive more much money. Only in
less than a year, he managed receive US$ 420,000, and the number was continue
to rise.
But after some time, Charles was no longer buy the IRC coupons because his
supplier in Spain are out of stock, which means that he is no longer making a profit, but investors are continue to
deposit more and more funds. And here’s the mistake: Charles let that happen,
until he was eventually forced to pay interest to old investors using the funds
deposited by new investors, because his 'investment company' is no longer
making a profit.
And that was the beginning of the famous Ponzi Scheme, that named after him.
We can see here that Mr. Ponzi was not intend to harm or defraud his investors,
but his mistake was that he was too greedy, where he continues to receive new
funds even though he could no longer make a profit.
Although not exactly the same, but the same thing could also happened to
the cooperative, because a cooperative usually receive any money deposited by
its members, no matter how large it is, while the manager of the cooperative is
not necessarily able to find new business opportunities. When Koperasi
Cipaganti (KC) is late in paying interest to its investors, the manager said
that it was because the coal business (the business run by the cooperative) was
sluggish due to the decline in the price of coal, so that they had difficulty
in cash flows. But if so, then why to this day KC still receive capital
injections from their members?
However, this does not mean that KC is running the Ponzi Scheme, as there
is no evidence about it. But my point is, when the coal business is cannot
generate any more profit, then how KC will use the funds belonging to the
members of the cooperative, while the amount of the funds is continue to grow?
Conclusion
Koperasi Cipaganti is one of the cooperative that has been operating in
Indonesia for a long time (if I’m not mistaken, more than 10 years), and so
far (except these days) it never had any
dispute with its investors. If they having difficulties in paying monthly
interest to their investors, it is because of an event that could not be avoided,
ie the decrease in the price of coal, or another problem in another business (KC
build hotel as well, but construction stalled). So it was more or less the same
like when the coal company made a large profit in 2011, but after that their
profits fell dramatically and also their shares, and eventually causing losses
for investors who hold the shares.
And in contrast to coal companies that don’t give any fuck when investors
protested about their poor financial performance (especially The Bakries, you
cannot expect to see them!), KC management was responsible enough to at least
be willing to hold several meetings with the investors. I, frankly, do not know
how about the continuation of this problem, but if we see that the coal sector
slowly but surely began to recover, then there may be hope that in the end KC will
be eventually recovered, to be able to pay the interest to investors as usual.
Then about PT Cipaganti Citra Graha,
Tbk (CPGT), a newly listing company in the Indonesia Stock Exchange, it is
not a Koperasi Cipaganti, because it is impossible for a cooperative to hold an
IPO (CPGT is a limited liability company, not cooperative). CPGT is one of the
subsidiaries of the Cipaganti Group that specializes in the field of transport
services, tourist travel, and rental of heavy equipment. While for coal and
other businesses, it was held by other subsidiaries of the Group (so CPGT has
nothing to do with coal). While KC, because it is not a company, then it was not a part of the Cipaganti Group.
But KC is one of the shareholders of CPGT, ie 4.4% stake as of April 2014.
Cipaganti Group is one of the most prominent business groups in Indonesia,
and the most unique as well because they also manage a cooperative (though not
through the group), where the membership is open to the public, while they
could obtain funding from banks or even stock market through the IPO. Some
people might give arguments about this, but still, I think this Group is ‘unique’.
No comments:
Post a Comment