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The People's Stock? No More!

In recent days, there are some media which reporting on the amount of debt of the Bakrie Group, which was already in an alarming stage, or at least that’s what they said. There is also an article that says that the nomination of Aburizal Ical Bakrie as the President of Indonesia is indicated as an attempt to save the Bakrie Group of bankruptcy due to debts. An attempt to drop the Bakrie-related stocks? Probably not, because the stock of Bumi Resources (BUMI) and his brothers has already plunged since the beginning.

If we considering that since many years ago, Bakrie is always have a bunch of debts, and this issue is somehow suddenly linked with the nomination of Ical as President, then the story about Bakrie debts is probably has less to do with the business, but rather to politics. Apparently, there is a person who are upset after he was alleged to be involved in case of tax evasion, and also had being called by the Commission of Corruption Eradication (Komisi Pemberantasan Korupsi/KPK), even though only as a testifier. Yep, you certainly already know who the person is: Hary Tanoesoedibjo, the owner of Bhakti Group. Some time ago one of the group’ subsidiaries, Bhakti Investama (BHIT), had reported on tax fraud (I don’t know the details of the case, but the main point is about taxes). Even for politics nonexpert like me, it was clear that the news about the tax case is related to the joining of Mr. Hary to Nasdem Party, because the news is only heavily blown by a single TV station only: TvOne, which belonged to Bakrie Group, where Ical as the patron of the Group is also the leader of Golkar Party, one of main political competitor of Nasdem. So now, after the tax fraud news began to evaporate by itself, it is Mr. Hary’s turn to launch a counter attack, as he is also have several TV stations.

But we will not discuss about the politics here, nor about the media war. Rather, what is the real number of Bakrie debt today? And if the amount of the debt is still within reasonable limits, or actually alarming as reported? Because if we read the numbers in the news articles, the data tends to be confusing. That's why I then summarize the data of balance sheet of Bakrie Group companies for the period of First Quarter 2012, and here’s the results:


Companies
Currency
Equity
Earnings
EER (%)
Liabilities
DER (x)
Bumi Resources
(million US$)
980
261
26.7
6,411
6.5
Darma Henwa
(million US$)
311
(9)
(2.9)
431
1.4
Energi Mega Persada
(million US$)
668
(203)
(30.4)
1,241
1.9
Visi Media Asia
(billion Rp)
1,595
(372)
(23.3)
919
0.6
Bakrie Telecom
(billion Rp)
4,032
(1,740)
(43.1)
7,997
2.0
Bakrieland Development
(billion Rp)
10,726
939
8.8
7,095
0.7
Bakrie Sumatera Plantations
(billion Rp)
9,164
2,297
25.1
9,936
1.1
Bakrie & Brothers
(billion Rp)
12,278
376
3.1
11,007
0.9

Note:
  1. EER = Earnings to Equity Ratio, the greater the number the better the company. If minus, then it means that the company had a deficit, as an accumulated loss from the past. Ideally, EER is at least 50% for an established company (which has been running for more than ten years), or 25% for a start-up company.
  2. DER = Debt to Equity Ratio, the larger the number the uglier the company. Ideally DER is less than 1 times. But if more than 1 time, then the number that can be tolerated is 3 times, if more than that then it was distress.
  3. Another Bakrie Group company is Bumi Resources Minerals (BRMS), but when this article was written the company had not released its financial statement yet.
Okay, pay attention. The Bakrie Group’s main subsidiaries, ie Bumi Resources (BUMI), had a net capital of US$ 980 million or around Rp9 trillion. But the total liabilities? US$ 6.4 billion, or about Rp60 trillion! If combined with Darma Henwa (DEWA) and Energi Mega Persada (ENRG), the Bakrie Group had net capital of US$ 2 billion, and liabilities of US$ 8 billion from the three companies, with retained earnings of... US$ 49 million only. It is reasonable? Absolutely not! As already mentioned above, ideally a company have an EER of at least 50%, and DER less than 1 time, or maximum 3 times. But the three above company had an average of EER of 2.5% only, and DER about 4.1 times, far from reasonable.

While DER of DEWA and ENRG, they are 1.4 and 1.9 times each, or seems reasonable, but it was because the two companies has raise capital by rights issue some time ago, not because of debt reduction or an increase in retained earnings as a result of the accumulation of net income. In fact, the retained earnings of both companies are minus aka deficit.

Next, take a look at Visi Media Asia (VIVA), Bakrie Telecom (BTEL), Bakrieland Development (ELTY), and Bakrie Sumatera Plantations (UNSP). The total net capital and liabilities of the four companies are Rp25.5 and Rp25.9 respectively, so their average DER are 1.0 times, still reasonable though. But their EER? With a total of only Rp1.1 trillion in retained earnings, the four company's EER is 4.4% only, again very small. And once again, the small number of DER is because the three companies above, except BTEL, obtained additional capital from an IPO or rights issue, and not because the company obtained an increase in the balance of profits. BTEL iself has a sizable deficit, ie Rp1.7 trillion.

Lastly, Bakrie & Brothers (BNBR). By the way, noted that the calculation of assets and net capital of BNBR should be separated from any other companies of Bakrie Group, because BNBR is actually the parent company of BUMI et al.

In this BNBR, the performance of the group was seen normal with total liabilities of 'only' Rp11.0 trillion, and Rp376 billion in retained earnings. But again, do not forget that it was because of the quasi-reorganization of the company in late 2011. In the third quarter of 2010, BNBR had liabilities of Rp20.4 trillion, and Rp28.2 trillion of deficit. Actually, I think that the numbers are too large to be erased only through the quasi-reorganization process, but that's the facts: The quasi-Reorganization of BNBR has successfully erased the deficit by a total value of Rp34.9 trillion, or about US$ 3.5 billion. Amazing, is not it?

And what about the eight companies net profit in the first quarter 2012? Well, you can see the data by yourself, as I have nothing to say ‘bout dat.

Companies
Currency
1Q12
1Q11
Growth (%)
Bumi Resources
(million US$)
(107)
111
NM
Darma Henwa
(million US$)
(3)
8
NM
Energi Mega Persada
(million US$)
5
3
49.5
Visi Media Asia
(billion Rp)
0
(4)
NM
Bakrie Telecom
(billion Rp)
(356)
(41)
764.7
Bakrieland Development
(billion Rp)
(88)
48
NM
Bakrie Sumatera Plantations
(billion Rp)
84
231
(63.7)
Bakrie & Brothers
(billion Rp)
89
(281)
NM

Back to 2010. In a seminar, I heard the speaker say something like this: 'At the moment, the people are always take a look at the movement of B7 stocks (short for Bakrie Seven Brothers, at the time BRMS and VIVA were still not listed yet) to make a trading decision. So if you want to see whether the Jakarta Composite Index (JCI) will go up or down, then just take a look at BUMI, whether it goes up or down. There is a myth that the movement of any other stocks will follow the movement of the people’s stock (‘Saham Sejuta Umat’, the nickname of BUMI), even including Astra International (ASII).'

'But in the future, say 3 - 5 years from now, if the financial performance is B7 is still not clear as it is today, if they are still more busy to taking care of the debt refinancing than company’s actual operations, and to make a profit, then the stocks will not sell anymore. Someday there will a time when no one cares to the stock of BUMI, whether it wants to go up or down.'

'Because in the end, investors will realize that they cannot invest in B7, considering that the fundamental is totally a mess. Some people may prefer to speculate in these ‘fraud’ stocks, but sooner or later they will learn that it does not make any profit but only raise their greedy nature. In the early 20th century, Wall Street investors were also prefer to speculate rather than invest in stocks, which resulted in a great depression in the 1930s. But then they were willing to learn, and now Dow Jones has become one of the largest stock indexes in the world. The Indonesian Stock Markets will also achieve such position someday, although it will certainly take time. But when the time comes, then there will be no place for the B7, especially if the companies are not willing to change their habit.'

So, back to the question above, what is the number of Bakrie Group's current debts? I do not know, but it is obviously very large. Is it big enough to be default? Well, maybe not, because the Bakrie Group has always as an expert in treating their creditors. Their expertise in building relationships with many parties also giving them a much better position than other business groups who also had an issue of large debts (eg Hadi Surya Group, which have to helter skelter to face the debt restructuring of Berlian Laju Tanker/BLTA). Until now, there are not the stories that the Bakrie Group has defaulted its debt (in Bakrie Life case, it is not a debt default, but only an abusive action to its own customers). Although the balance sheet of the Bakrie Group listed companies are all getting heavy by debts, but we don’t know about the other companies that are not listed, and the Bakrie Group sure have a lot of companies out of of the nine companies listed on the Stock Exchange.

Then is the nomination of Mr. Ical as The President to save the Group from default and bankruptcy? Well, I do not understand about it. But if you are asking are the Bakrie Group stocks viable for investment, then my answer is still exactly the same as of two years ago: No! There are still a lot of other stocks in the market that are much better. So why you have to waste your time, energy, and money to invest in these big junks???

Actually, if we compare the business practice of Bakrie Group with their political opponents in Nasdem Party, then the Bhakti Group of Mr. Hary Tanoe is also not fair to retail investors, in term of manipulating the stock prices. But at least some of the Bhakti Group’s stocks such as Media Nusantara Citra (MNCN) and Global Mediacom (BMTR), is have good fundamental and decent for investment. So if Mr. Hary also ran for President, then the capital market investors would probably prefer him than Mr. Ical.

But the hell they both want to be the president, or be a king, but you as an investor should take a notice to the sentence that already written above: 'One day, there will be a time when there is no one who cares about the movement of the stock of BUMI, whether it going up or down, especially if the company does not change.'

In the capital market, there will always be a new investor who do not understand anything, who buy stocks without analysis at all. But gradually, they will understand everything, including that they can not invest in the stocks of Bakrie. And that's not their fault, but the fault of the Bakrie group itself.

Original article was written at July 5, 2012

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