Judging from the
production volume on 2009, Berau Coal Energy (BRAU) is the fourth largest coal
company in Indonesia, after the combination of Arutmin and Kaltim
Prima Coal (both subsidiaries of Bumi Resources), Adaro,
and Kideco (subsidiary of Indika Energy). On 2009, Bumi Resources recorded
coal production volume of 57 million tons, Adaro recorded 41 million tons,
Kideco was 25 million tons, and BRAU was 14 million tons. BRAU was greater than
Indominco Mandiri (the subsidiary of Indo Tambangraya, which recorded 12
million tons), and PT Bukit Asam (11 million tons). It looks like BRAU is a
serious coal company, should be like that.
The
IPO
of BRAU gained lots of attention in the market, because the acquisition of
funds target was quite great, which was amounted to Rp2.7 trillion (which later
revised to be Rp1 trillion only, but still quite great). The total of released
stocks was also quite large, which was up to 7 billion of shares, so it became
a guarantee that the stocks transaction volume would be liquid. Then how about
the prospect?
BRAU probably reminded some
of you to IPO of Benakat Petroleum (BIPI), sometimes ago, because there are
some similarities between the two: 1. The underwriters was the same, which was
Danatama Makmur, 2. The IPO value were both great, IPO value
of
BIPI reached up to Rp1.6 trillion, 3. The
company’s structure was complicated, where there were many strange and vague companies
located in British Virgin Island, Seychelles, etc, 4. The company seemed very
big, when in fact, they are not. Wait, does it mean that BRAU a small company?
Or does it have poor performance? Let’s check it out.
On the financial
statement dated on 28 February 2010, BRAU recorded asset of Rp12.3 trillion. It
was quite big indeed, but unfortunately, half of it, which was amounted to
Rp8.6 trillion was in form of debt. Prior to that, on 2007, BRAU only had asset
amounted to Rp4.8 trillion. On 2005, BRAU didn’t have any asset except for cash
funds worth no more than Rp1.3 trillion. Looking from any side, the increase of
asset was hardly said to be fair. BRAU probably was the only company in
Indonesia, which assets increased almost ten
thousand times in just 5 years. And that spectacular increase was almost
completely not derived from an increase in net working capital, but rather from
the addition of the paid-in capital and debt.
It’s like a company that miserable before then suddenly rich, not because
the real income increased, but because there was the third party who gave the
company a mountain of loans. Did the company then became big because of the
loans? Of course not, in fact the opposite: the company now has liability to
pay off the loans plus the interest.
The one who became rich
are those behind the company, because it’s them who get the money, but the debt
status incurred by the company. How’s so? By involving lots of companies in the
corporate structure of BRAU, so the real owner of BRAU whose responsible for
the debts became complicated. That’s why in the corporate structure of BRAU
there are lots of strange companies such as Seacoast Offshore (British Virgin
Island), Winchester Investment (Seychelles), and Aries Investment (Malta), which
intentionally established to be the representative of BRAU’s owners. These
companies, then, ‘responsible’ for those debts, while the people behind BRAU
will remain undisclosed.
Some
of you may say that this is a common practice for a company that have been
taken over by a private equity (PE) firm, as BRAU was previously owned by
entrepreneur named Ibrahim Risjad, but now it is owned by Bakrie Group through
Recapital. And yes, Recapital as a private equity firm have acquired BRAU by
using debt, and then gained profit, and this IPO is their exit strategy. But
this article is intended for public investors, not for some big fish like them.
Ok, now let’s return to
the financial statement of the company. Until last 2008, BRAU
only had equity of Rp378 billion, yet its debt already reach up to Rp5.5
trillion. The total amount of debt of BRAU continued to rise. On 28 February
2010, BRAU was recorded having debt amounted to Rp8.6 trillion. On the same
period, BRAU indeed was recorded equity of Rp3.4 trillion, which rose
significantly than in 2008, but it came from the addition of paid-in capital
amounted to Rp2.4 trillion.
What’s need to be noted
is, from the total of liabilities of BRAU amounted to Rp8.6 trillion, Rp2.7
trillion of it is a short-term debt that will be due within a year. We surely
understand that those people behind BRAU would not gave up so easily, in the
sense that they wouldn’t pay off that Rp2.7 trillion of debt in form of cash,
but could be in form of debt (again). That’s why, sometimes ago, BRAU still
reported to achieve debt amounted to US$750 million. That funds were sufficient
to pay (refinancing) some of the debts that would be due soon. What if the debt
of US$750 million will also be due soon? It’s easy; just do refinancing again.
And so on.
So, does BRAU a serious
coal company? Serious, yes, but not in the coal sector
(at this point), but in taking its investors’ money
(through IPO). No matter how big the coal production of BRAU, it seems that the
generated net income will not be able to cover its overload debt. Who doubt
Bumi Resources as the largest coal producer in this country? But you
may see how they pay off their debts: If not by doing right
issue or conversion of the debts into equity, then by rescheduling the pay
time,
or refinancing. It’s possible that BRAU will also become like that.
Benakat Petroleum
(BIPI)
Do you still remember
about BIPI? This oil company got fresh funds amounted to Rp1.6 trillion from
its IPO on last February. It promised that BIPI would acquire 3 mining
companies at once. Was the acquisition using that Rp1.6 trillion of fund? No, I
have no idea which fund it used. Well, sometimes, the retail investors will not
pay attention to this thing. They only notice on ‘BIPI will acquire 3 mining
companies’, so that they hunt the stock in droves. They don’t really notice
whether the promised acquisition would use their fund amounted to Rp1.6
trillion or not (the fund is taken from your money, right?).
It’s almost through half
a year since IPO, BIPI apparently had not acquired any mining company. Indeed,
BIPI had acquired Elnusa (ELSA) amounted to Rp800 billion (in average), but not
using the funds from IPO, instead of borrowing funds from its holding company,
PT Indotambang Perkasa. Does the Rp1.6 trillion of funds were used
to develop the oil field as its promise? Apparently not. Until last June, BIPI
had just used the IPO funds amounted to Rp109 billion to develop its oil well.
The rest of it, which was Rp1.46 trillion, was left alone and placed as deposit
in Bank Capital. Because lately it was discovered that the deposit in Bank
Capital was actually absent, BIPI rectified it by saying that the funds were
saved in form of repo in Wellington Ventures Ltd.
I don’t know whether
it’s true or not, but clearly, the fund of Rp1.46 trillion weren’t used to
develop the oil field as promised. The repo saving obviously more profitable than
manage the oil field, right? Just place the funds, and wait. With interest rate
of 12% yearlong, then the management will receive net funds amounted to Rp177
billion within a year without having to work at all.
Just like BRAU, it’s clear
that BIPI is better at managing the investor’s funds than managing the oil
field. BIPI is even worse than BRAU. It’s because BRAU is at least producing
coal (in quite large amount), while BIPI? How much does its oil production? No
wonder that its stocks sag.
Whether due to the
information about the use of IPO funds by BIPI or the other, lately, the
management of Danatama, the security that administers IPO of BRAU, rectified
the proceed target of IPO, from US$300 million to only US$100 million. One of
its executive stated, ‘If the acquisition of funds is excessive, it will be
questioned by Bapepam; what the funds used for?
So, does it mean that if
the fund was ‘only’ US$100 million, then either Bapepam as
the authority or investors will not question and ask for accountability about
the use of those funds? How petty!
At the end of the day,
the existence of companies like BRAU and BIPI is still needed to enliven the
exchange and maintain the market’s liquidity. Investing on these stocks indeed
can make your pocket dried up in a blink of an eye, particularly when you are
not careful and just take the information released by the interest parties. But
if you are good at speculating, then it’s not impossible that BRAU can make
your portfolio fatter, also in a blink of an eye. For the speculators, this
high-risk play is fun. But if you are not good at speculating, then remember
that no one push you to buy these vague stocks. There are still a lot more of
healthy stocks to be collected.
Just like other IPO’s
stocks, BRAU is also likely to rise on its first trading days until the next one
or two months. BRAU might even have the opportunity to be at the level of
1,000. After that? We’ll see.
Additional note (written
on 20 Agustus 2010)
Based on this comment: Mr.
Teguh should be
acknowledged to have formal knowledge in financing, or probably your basic
knowledge was on this field? But your EXPERIENCE in the stock market world
seems SHALLOW and SUPERFICIAL. The last time BUMI did right issue was on 2000,
and since then they didn’t do right issue or debt conversion anymore. Your
statement was: “Who doubt Bumi Resources as the largest coal producer in our
country? But see how they pay off their debts: if not by doing right issue or
conversion of debts into equity, then by rescheduling the pay time”. It shows
that you are very inexperienced.
It seems that there’s
something I need to clarify here. Let me discuss this in short.
About the right issue,
yes, last time BUMI did that was on 26 May 2000, and after that, never again.
But BUMI’s holding company, which is Bakrie & Brothers (BNBR) had did the
right issue worth of Rp40.1 trillion on 2008, which half of it was used to
acquire 35% of BUMI’s stocks amounted to Rp36.8 trillion. The funds, then, was used
by BUMI for various purposes, including to pay down the debts.
So, Bakrie Group as the
owner of BUMI didn’t do right issue through BUMI directly, but through its
holding company or other companies. Later, the funds from the right issue can
be injected in form of acquisition or others. Besides for BUMI, the funds generated
from right issue of BNBR also used to acquire Energi Mega Persada (ENRG) and
Bakrieland Development (ELTY). Yup, that’s the benefit if you have many
companies: If one of your companies seemed cannot execute certain corporate
action, then you can do that through the other company.
Then about the debt
conversion. On 2007, BUMI had issued bonds conversion amounted to US$300
million, which used to convert its debts to Credit Suisse (CS) to equity. Consequently,
on last 2009, CS has BUMI’s stock worth of Rp286 million, when the previous
year, CS did not have BUMI’s stocks at all. On the first quarter 2010, the
stock ownership of CS in BUMI increased to 354 of shares.
By the way, Credit
Suisse is one of the main creditors of BUMI. On the first quarter 2010, BUMI
still had short-term and long-term debt to CS amounted to US$487 million.
In the future, which is
approximately on next September, there is possibility that BUMI will do right
issue and debt conversion, where BUMI will issue new stocks without HMETD
amounted to Rp4.6 trillion. The funds will be used to pay the debt to Country
Forest, Raiffeisen Zentralbank, JP Morgan, and of course Credit Suisse, in form
of debt conversion into stocks. Here’s the link. But if I’m not
mistaken, BUMI has already denied that rumor. Whether it’s right or wrong,
maybe it’s better if we wait until the next September.
Once again, I apologize
if the discussion above seemed quite unpleasant for some of you. I just try to
be objective. But probably the article above was too critical, so I’ll try to
be less intense in the future.
Original article was
written on July 29, 2010.
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