[nasional_list] [ppiindia] Indonesia's shafted coal deal
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- Date: Sat, 9 Sep 2006 00:38:29 +0200
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http://www.atimes.com/atimes/Southeast_Asia/HI06Ae01.html
Sep 6, 2006
Indonesia's shafted coal deal
By Bill Guerin
JAKARTA - The US$3.2 billion blockbuster coal-industry deal involving
Indonesia's biggest business family, its most prominent investment bank and big
international lenders lies in tatters - and with it the prospects of the
country's struggling energy industry.
Announced this year with great fanfare, the influential Bakrie family's planned
divestment in Indonesia's two largest coal mines, PT Kaltim Prima Coal and PT
Arutmin Indonesia, was abruptly canceled in late August amid a disagreement
concerning valuation and payment schedules with the potential buyer.
Held under the Bakrie family's publicly listed PT Bumi Resources, the deal
would have earned the company a windfall profit of more than $2.5 billion and
would have represented the country's second-largest corporate acquisition ever
- ranking only behind last year's $4.6 billion sale of local cigarette maker
Sampoerna to US tobacco giant Philip Morris.
The spurned buyer, PT Borneo Lumbung Energi, owned by the local investment bank
PT Renaissance Capital, was blamed by Bumi for delaying the sale and
backtracking on previously agreed asset valuations. Insiders to the deal,
however, point to a lackluster financial performance by PT Arutmin in the
second quarter, where a sudden spike in production costs apparently spooked
international creditors circling around the deal.
Bumi had twice refused Renaissance entreaties to lower the acquisition price
and contended that the glitch in output at the Arutmin mine was due to
excessive rainfall. The two companies had initially agreed to complete the
transaction by September 30, but Bumi indefinitely canceled the sale after
being asked twice for a payment deadline extension.
Last week Bumi confirmed that the sale was officially off because of
irreconcilable differences on asset pricing, and later senior Bumi managers
said they would put minority stakes in the mines on the market for other
interested buyers. Bumi's shares were suspended from trading on the stock
exchange after the unanticipated announcement.
The deal's cancellation notably puts Bumi's new strategic vision in abeyance.
The company had in filings to the Jakarta Stock Exchange in March indicated
that the sale would help finance a strategic move into the alternative-energy
business, including possibly coal liquefaction, upgrading brown coal, and big
ventures into biofuel production.
The corporate restructuring was to include a merger between Bumi and PT Energi
Mega Persada (Energi Mega), a sister company in the Bakrie Group and
Indonesia's second-largest energy concern. With the canceled sale, that
mega-merger and its expected ramped-up oil and gas exploration activities are
also now in doubt. Energi Mega had already announced a $154 million loan from
Credit Suisse to finance new oil and gas projects, though it appears now that
the energy concern will need all the finances it can muster.
One of its majority-owned units, Lapindo Brantas, has been at the center of a
major environmental disaster in East Java, where in late May its natural-gas
prospecting activities unleashed torrents of toxic mud that have displaced
thousands of villagers and paralyzed regional road traffic. Nine people,
including officials from Lapindo and its drilling subcontractor, have been
charged under the penal code and environmental laws in a case where
compensation estimates range anywhere from $70 million to $300 million.
Sources close to the deal say that Energi Mega had plans to spin off Lapindo
Brantas before the merger with Bumi. But even if a buyer could be found, which
seems highly unlikely with the legal uncertainty surrounding the company's
future, any purchase would factor in the high end of possible legal
liabilities.
Bumi's purchase of cash-strapped Energi Mega, in an all-stock deal valued
around $1.2 billion, needs the approval of an extraordinary shareholders
meeting that has now been postponed for a third time to "some time between
November and December", according to Bumi finance director Eddie J Soebari. He
said extra time was now needed to evaluate Bumi's assets further after the
canceled divestment.
Misspent energies
The cancellation of the $3.2 billion deal casts new doubts on Bumi's future and
with it the future direction of Indonesia's energy industry.
Bumi, part of the Bakrie Group owned by the family of Coordinating Minister for
Welfare Aburizal Bakrie, had emerged strongly from the 1997-98 Asian financial
crisis. For instance, the company bought an 80% stake in Arutmin from BHP
Billiton for $148.5 million and the remaining 20% from the Bakrie Group for $37
million.
In 2003, it bought Kaltim Prima outright for $500 million from BP Plc and the
Rio Tinto Group. If the planned divestment had gone through, Bumi would have
made a fourfold profit on the amount it paid for the two mines in just five
years.
Bumi recorded total sales of Rp15.92 trillion ($1.63 billion) last year, up
significantly from Rp9.42 trillion ($1.05 billion) in 2004. Those sales
generated a net profit of Rp1.222 trillion ($125 million) last year,
representing 13% profit growth from Rp1.079 trillion ($120 million) in 2004.
The company now claims that several investors are now interested in taking up
minority shares in the mines. Most of the output of the two mines is exported
under supply contracts with Japan, South Korea, Taiwan and Europe. KPC and
Arutmin accounted for 37% of Indonesia's coal exports last year, making Bumi
far and away Indonesia's biggest coal exporter.
Moreover, Indonesia has recently replaced China as the world's second-largest
coal exporter, and industry experts predict it may soon surpass Australia to
become the top global supplier of steam coal. A substantial hike in global coal
prices - up from about $36 a tonne at the end of last year to about $52 now -
industry analysts contend may have had a bearing on Bumi's willingness to
scotch the planned divestment.
Credit Suisse First Boston (CSFB), Renaissance's chief financial adviser, was
set to extend Indonesia's largest ever corporate loan to facilitate the deal -
which along with other foreign creditors was set to exceed $2.1 billion. The
rest would have been financed by equity, including $700 million in an
exchangeable bond arranged by United Overseas Bank Ltd, Singapore's
second-largest lender.
Foreign lenders have demonstrated a new interest in regional coal industry
investments, coincident with surging global prices. But given the
unpredictability of Indonesia's judicial system and recent surprise rulings
against foreign investors, international banks are more circumspect about whom
they lend to in Indonesia nowadays.
Renaissance Capital, established in 2002 by by Suryadinata Sumantri, a former
partner at accounting giant Deloitte Touche Tohmatsu (DTT), and later joined by
his partner Samin Tan, was seen as a reliable, honest partner for the deal.
Both partners have earned a reputation in local business circles as highly
skilled consultants with a knack for presaging market trends.
They established Renaissance specifically to facilitate financing for
Indonesian-owned businesses operating in major energy sectors. Suryadinata and
Tan met when they worked for the consultancy firm Hans Tuanakotta and Mustofa
(HTM). At the time the firm was the official auditor for the now-defunct
state-run Indonesian Bank Restructuring Agency (IBRA), but the consultancy also
had a division that sold IBRA assets.
Tan was HTM's managing partner for tax affairs, having learned the ins and outs
of the trade at international accounting giant KPMG. However, DTT, citing a
possible conflict of interest, later asked that HTM no longer be involved in
selling IBRA assets, according to people familiar with the matter.
Nowadays, Renaissance is arguably Indonesia's best-connected investment house.
Renaissance's prowess in lobbying the government's new asset-management
company, PT Perusahaan Pengelola Aset (PPA), and its current chairman Mohammad
Syahrial has raised eyebrows in Indonesian business circles.
PPA currently holds all the unsold IBRA assets pledged to the government in the
tumultuous wake of the 1997-98 Asian financial crisis, and Renaissance has
played a pivotal behind-the-scenes role in brokering various debt-restructuring
deals between the government and indebted business tycoons.
Those connections and market knowledge may have given Renaissance a jump on the
Kaltim Prima Coal and Arutmin mines' future earning power, which has lately
become widely apparent. However, those connections, at least for now, still
aren't enough to seal the mega-deal with Indonesia's equally savvy Bakrie
business family.
Bill Guerin, a Jakarta correspondent for Asia Times Online since 2000, has
worked in Indonesia for 20 years, mostly in journalism and editorial positions.
He has been published by the BBC on East Timor and specializes in
business/economic and political analysis related to Indonesia. He can be
reached at softsell@xxxxxxxxxxxxx
(Copyright 2006 Asia Times Online Ltd. All rights reserved. Please contact us
about sales, syndication and republishing .)
[Non-text portions of this message have been removed]
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