Bakrie & Bank Capital, Part 2

Sometimes ago, management from B7's companies and Benakat Petroleum (BIPI) spoke about the bogus deposits funds in Bank Capital (BACA). The most striking one of course Bakrie Sumatra Plantations (UNSP). UNSP recorded to save more that Rp3.5 trillion of cash funds in form of deposit in BACA, and it was the biggest amount among the other companies (not including BNBR). And what was the management said? That there was ‘unsynchronized of data between UNSP and BACA was just merely an administrative error, because of the gap of financial recording time. Simply, it was just a mistype. Whether it was acceptable excuse? You can judge for yourself.

In essence, UNSP stated that Rp3.5 trillion deposited in BACA has been drawn exactly on 31 March 2010. That funds then distributed to several posts, one of them was to acquire Domba Mas, an oleochemical producer. Because the gap of financial recording time, probably UNSP has compiled the financial statement when the funds has not been drawn from BACA, so that the funds still recorded as deposit in BACA. And on the other hand, BACA has just compile its financial statement when the funds has been drawn. So? The problem here was not merely an administrative error.

We might not know whether the UNSP management’s explanation was true or just making it up. But although the explanation was true, then it doesn’t mean that this matter is resolved.

Now let’s check the UNPS’s financial statement. There , it was recorded that on first quarter 2010, UNSP had cash amounted to Rp4.5 trillion, which was a significant improvement than in first quarter 2009, where UNSP’s cash was only Rp213 billion. What makes the cash soar up to that amount? It is because UNSP is said to get fresh funds amounted to Rp5.0 trillion from the right issue, aka HMETD. Prior to that, UNSP had issued right issue amounted to Rp9.5 billion of new shares with the price of Rp525 per share, with PT Danatama Makmur as its stand-by buyer.

Due to the right issue, UNSP had cash funds amounted to Rp4.5 trillion, which if the right issue did not performed, then UNSP’s cash would be minus Rp500 billion (if the right issue value was Rp5 trillion, but UNSP cash was only Rp4.5 trillion). Well, here’s the problem: If UNSP stated that the Rp3.5 trillion of funds was no longer placed as deposit in BACA, then UNSP’s cash funds is no longer Rp 4.5 trillion, but Rp1 trillion only. The fund amounted to Rp3.5 trillion was not feasible to be used as cash funds, which if being put as current assets in the balance sheet, but became non-current assets, because it was no longer in the form of cash.

If the cash position changed from Rp4.5 trillion to Rp1 trillion only, the automatically, the current assets ratio will also change, so some of the fundamental analysis calculation, particularly the current ratio number of UNSP must be recalculated, because the balance sheet position had also change. So, there is no other option: UNSP must rearrange its financial statement on the first quarter 2010.

Has the problem solved? Not yet. Because UNSP is the subsidiary of Bakrie & Brothers (BNBR) where BNBR’s financial statement is a result of consolidation of its subsidiaries including UNSP, then BNBR’s financial statement of the first quarter 2010 must also be rearranged. If the rearrangement of the financial statement didn’t carried out immediately, then the ‘mistype’ error will spread to the next financial statements of BNBR and UNSP. It is because the financial statement from one period is related to the next period. Although indeed the late mistake can be avoided if UNSP management conduct a review or thorough audit for the financial statement of the first half 2010 and the next financial statements.

A financial statement is a very sensitive document, which the placement error of one number alone can cause the statements to be entirely wrong. Unfortunately, UNSP management and other members of the B7 (and also BIPI), does not seem to care about this.

If we look back, the error in the preparation of financial statements is seems like something common among B7’s companies members. We still remember that when Bumi Resources (BUMI) issued its financial statement of the first quarter 2010 some time ago, one of the directors easily said that BUMI’s net income was not actually fell down, but rose. The reason? Because BUMI’s net income on the first quarter 2009 was not US$ 125 million as stated in the financial statement, but only US$71 million. Therefore, BUMI’s net income did not fell 22.3%, but rose 38% because BUMI’s net income on the first quarter 2010 was US$97 million.

Well, if BUMI’s net income on the first quarter 2009 was only US$71 million, why it was recorded as US$125 million? The management argued that the difference was due to the administrative error, where the overpayment of tax and the impairment of minority values haven’t been included. How can a company like BUMI with billion dollars of assets can make such severe error just because an administrative error? No matter what, the sum of US$ 5 million  was not a small amount. I would immediately retire if I have that much money.

So, there’s no need to be 'notified' by any Bank Capital’s case, we already know that the financial statements of B7 is often not right. And B7 may not be alone, because at least we know that BIPI also had the same problem. What about the other companies? Who knows.

Original article was written on July 22^nd, 2010.