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Heart is Only for Lovers, Bro!

Bisnis Indonesia newspaper had once interviewed Aburizal "Ical" Bakrie, a former chairman of the Bakrie Group (now Bakrie Group is led by Nirwan Bakrie, Ical’s younger brother), in the year 2010 in order to Bisnis Indonesia 25th anniversary. In the interview, the reporter asked the question, 'How could the Bakrie Group through Bumi Resources (BUMI) has managed to take over Arutmin and Kaltim Prima Coal (KPC)?' And Ical said, 'At that time there was the opportunity, so that we immediately grabbed it. About the money, we would take care of it later.'

As you are already know, BUMI took over 80% stake in Arutmin from BHP Billiton, an Australian mining company, for US$ 148 million, in 2001. Two years later, ie in 2003, BUMI once again acquired a coal company named KPC from Beyond Petroleum (BP) and Rio Tinto, at a value of US$ 500 million. In the interview with the Bisnis, Ical said, 'We bought Arutmin and KPC without cash, because in 2001 we were in bankruptcy and did not have money at all, because of the monetary crisis in 1998.'

If Bakrie bought Arutmin with no cash, then how’d they be able to pay the price? By the use of debt, of course. According to Ical, in 2001, after completing the debt restructuring in Bakrie & Brothers (BNBR), he discussed with his brothers, Nirwan and Indra, about the next step of the Group, and they all agreed to went into the energy sector. At the time, there were two companies that could be acquired, ie Arco and Arutmin. Arutmin was seem easier to be acquired considering the price was 'only' US$ 180 million, while Arco was US$ 600 million. Bakrie Group subsequently earned US$ 180 million from the Bank Mandiri and Jamsostek, and after negotiations, it was agreed that the price of 80% stake of Arutmin is US$ 148 million. By holding Arutmin (which was later placed under BUMI), the Bakrie group slowly started to go into its business track again.

In this case there were three remarkable things that had done by the Bakrie Group. First, they were able to find two companies to be acquired, while in fact Ical et al clearly did not have any funds. Second, they were able to obtain a new loan in a large amount, that is US$ 180 million or about Rp 2 trillion, just after the completing of the process of debt restructuring. And third, they were able to force Arutmin’s previous owner, BHP Billiton, to sell its asset at a lower price.

Only two years later, the Bakrie Group was expanding again, this time is acquiring KPC, which was would be divested by its owners, BP and Rio Tinto. In its attempt to take over KPC, Bakrie wasn’t alone, as other conglomerates such as Prabowo and Salim Group were also interested in KPC. At the time, Bakrie’ position was actually difficult, since they still do not have the money, and this time the government was also refused to lend fund (when acquired Arutmin, Bakrie obtained a loan from Bank Mandiri and Jamsostek, which were the state-owned companies).

However Ical was never gave up. The owner of KPC asked a price of US$ 700 million, and Ical himself then flew to the BP headquarters inLondon to negotiate. Somehow, Ical successfully bid to purchase KPC for US$ 500 million only. According to Ical, there were many other conglomerates that also expressed their interest in the KPC, but it was only himself who would struggling to negotiate with BP and Rio Tinto as the owner of KPC, while the others didn’t do anything except whine to the government: 'Why KPC is very expensive? Make it a little cheaper, please!' Earlier, the Government was actually asking BP and Rio Tinto to set the highest price of US$ 800 million to divest KPC, but the price was considered too expensive by local conglomerates (it was funny that those conglomerates then get angry after knowing that Bakrie can buy KPC at a much lower price than US$ 800 million).

Finished with his dealing in London, Ical then meets Nirwan, 'Wan, I have the deal with the KPC’ owner, just US$ 500 million, they said. Now, where will we get it?'
Nirwan asked back, 'How about Bank Mandiri and Jamsostek?'
'No, they’re not giving any more loan.'
'Okay, I will go to Singapore, hope that the banks there are more friendly with us.'

Nirwan then went to Singapore, and after some time, he succeeded in obtaining a loan from four investment banks, but with high interest (Ical did not itemize what percentage the interest was, or who were the four banks). However, the loan was not enough, as there is still a shortage of approximately US$ 300 million. Again, Nirwan showed his skills in negotiating: He contacted KPC’ customers, and asked them to pay in advance for the coal they purchase. In return, they will be given discounts or any other benefits. To do this, Nirwan were went toJapan, China, and Europe, and once again he succeeded. Bakrie Group then obtained cash of approximately US$ 300 million, which represents an advance purchase of coal from KPC (which of course is also debt), whereas KPC itself was not theirs yet. Amazing, isn’t it?

But after obtaining loan and advances for purchase of coal, there were still shortcoming of US$ 4 million, and it was a very large number as Bakrie Group had no money at all. Nirwan finally flew back to Singapore, and a few moments later he called Ical.

'Bro, the banks agreed to give an additional loan of US$ 4 million. But they asked for a share of KPC’ profit, in an amount of US$ 20 million. What d’ya think?'
'What?? Seriously they are asking that much??'
Ical thought for a moment, 'Well, my heart says no.. We just can’t do that. '
'Your heart? Heart is only for lovers bro. It's all about business, and you have to be a little tough.’
Ical was shocked to hear the words, before then saying 'Fine, whatever you say.'

So finally, KPC was officially becomes a subsidiary of the Bakrie Group.

Probably, as since Arutmin and KPC were taken over by debt, then it becoming a habit of Bakrie Group until now. Also, when Bakrie take over 24% stake in Newmont Nusa Tenggara, they using loan from China Investment Corp (CIC). And indeed, it was Bakrie’ expertise, ie negotiating and obtaining loan. Still in the same interview with Bisnis, Ical said that in the past he had to expand one of his companies, Bakrie Sumatera Plantations (UNSP), by acquiring several oil palm plantations at a value of totaling US$ 55 million. At the time, Ical’ father, Achmad Bakrie, asked, where will you get the money? As far as I know, you don’t have money that much? And Ical answered, we’ll looking for it later. For now, we do the acquisition first.

A friend of mine once talked directly with Nirwan Bakrie, 'Bro, you were really very active in acquisitions, here and there. Had you ever think about other group? They got nothing because you’ve taken it all.’
And Nirwan replied, 'Well, you know.. The opportunities were just come and go, right in front of my face.. Then how am I supposed not to take it???'

So, it seems like in expanding, the Bakrie Group’ policy is to take the goods (company) first. About the money to pay the acquisitions, or what to do with the things after being taken over, we’ll take care of it later! Aaand... maybe this is why BUMI, and Bakrie Group other companies are more busier to acquire, divest, issuing debt, refinance, etc., rather than take care of their business operations. That’s no wonder since at the beginning, the Bakrie family expertise is in the areas of negotiation and financing, rather than in the management of the company itself. Maybe they think that as long as they recruit a competent CEO or director in their respective fields, so any company that they have will be able to operate properly, so they could keep continuing to seek new business opportunities.

One thing for sure, although there are so many news recently reported that Bakrie is going to be default, because their debts are already too overcrowded (which was then used as a justification of the decline of Bakrie Group stock prices), but it is not prevent the banks to continue lending. On August 10, 2012, Visi Media Asia (VIVA), a Bakrie company in the media, earned US$ 80 million loan from Deutsche Bank's Singapore branch. Why the Deutsche Bank is still dare to lend to Bakrie? Well, ask them! But if you are the director of the Bank, then will you give loan to Bakrie Group if they had a high risk to be default?

Original article was written in September 10, 2012.

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