Indonesian largest but
-on the other hand- also most indebted coal company, Bumi Resources (BUMI), has just released its financial statements
for the period of first quarter of 2015 (late as usual). And the result? Well,
it’s just getting worse. BUMI reported a net loss of US$ 344 million, leading
to a capital deficiency of US$ 1.2
billion. On its balance sheet, from US$ 5.7 billion of liabilities of the company,
US$ 3.6 billion of which are bank debts that will mature in less than one year. With the current
conditions where the coal price is still falling down, how could BUMI repay
those short-term debts?
Though seems bad, but so
far BUMI never had default/failed to pay its debt. In November 2014, the
company had failed to pay the coupon of one of its bond that issued in
Singapore, but the company only defaulted on the coupon, not the bond itself
(because the bond would mature in 2017). And even then, the management somehow
could obtain protection from the courts in Singapore to protect the company
from possible lawsuits from bondholders (because their right to receive the
payment of coupon/interest have been violated by BUMI).
However, for Berau Coal
Energy (BRAU), the story is totally different.
BRAU was formerly
belonged to Recapital Group, an
investment company run by two young businessmen, Sandiaga S. Uno and Rosan P. Roeslani.
Because Rosan was a subordinate of Nirwan Bakrie, which is the CEO of Bakrie Group, then automatically BRAU
had a direct relationship with the Bakrie Group and BUMI, Bakrie’s largest and
most important asset. In 2011, when the Bakrie Group had an agreement of share
swap of BUMI with Bumi Plc, an
investment company belonging to Nathaniel
Rothschild that listed on the London Stock Exchange, the shares of BRAU
also including in the agreement. As a result, in 2011, both Bakrie and Recapital
hold a stake in Bumi Plc, while Bumi Plc itself holds a 75% stake in BRAU
(later increased to 85%), and 29.2% stake in BUMI.
Later, as you may
already know, the cooperation turned into dispute. And after a prolonged fight
for nearly two years, in February 2013 Nat Rothschild eventually lost the game,
where Bumi Plc should return the 29.2% shares of BUMI to the Bakrie Group, but
they still has BRAU (Bakrie and Recapital had previously been sell their shares
in Bumi Plc to Samin Tan, the owner
of Borneo Lumbung Energi & Metal/BORN, another Indonesian coal company). So
starting from February 2013, the Bakrie and Recapital acquired BUMI back, but they
lose BRAU to Nat Rothschild (and Samin Tan, but it seems that the pair
separated not long after, where Nat managed to kick Samin out of the company),
through Bumi Plc. The name of Bumi Plc then changed into Asia Resource Minerals Plc (ARMS), and is still listed on the
London Stock Exchange, UK.
Well, here’s the main
story: Just like BUMI, Recapital manages BRAU by way of 'Bakrie method', where
the company is burdened by a lot of debt. So BRAU, in hands of Recapital, was
one of the most indebted coal company in Indonesia, once again, just like BUMI.
And both the Bakrie Group and Recapital were very great in treating the
creditors, that although they have difficulties in paying their debt due to the
poor situation of the coal industry, but they were always able to escape from
the threats of default.
But it looks like the
new owner of BRAU, Nat Rothschild, does not have the skill, while BRAU was
already in heavy debt. In early 2015, there was a warning that BRAU cannot
repay the bond debt of US$ 450 million which would mature on July 8, 2015. But
pity, the management was not able to lobby the court (as the management of BUMI
did) or the bond holders itself, to delay the payment. And consequently, these
bonds are now default.
The default status
requires Nat Rothschild to sell assets belonged to BRAU at any/low price, or
even to sell BRAU itself, in this case the majority of shares, so that Nat will
no longer the controlling shareholder at BRAU.
And it seems that the
opportunities were captured by Sinarmas
Group. In a disclosure released in April 2015 by United Fiber System (Unifiber), a coal company of Sinarmas Group that
is listed on the Singapore Stock Exchange, Unifiber management stated that the
company has reached an agreement with Nat Rothschild to acquire ARMS, the
parent company of BRAU (and ARMS actually had no other asset, but BRAU only).
![]() |
Logo Unifiber, a subsidiary of PT Dian Swastatika Sentosa (DSSA), a coal company of Sinarmas Group |
The question now is,
why Sinarmas dare to acquire BRAU? Does not that mean that they are the ones
who now have to pay the debt of US$ 450 million earlier? And it even not
including another bond worth US$ 500 million which will mature in 2017. Okay, let's
say Sinarmas have enough funds to pay off all that debt, which, when coupled
with the costs to acquire BRAU itself, then they should spend money of more
than US$ 1 billion.
Then what is so special
about this BRAU, that they are willing to spend that much money?
Because if you look at
the latest financial statements of the company for the period of third quarter
2014 (since BRAU had defaulted, the company delaying the release of its
financial statements. And this is different from the BUMI which, though still
late as usual, but the financial statements for the first quarter of 2015 has
been released), the net equity of BRAU also began to be negative alias capital
deficiency, because the company continues to suffer losses. The share price
itself continued to fall to finally suspended at Rp82 per share.
Meanwhile, if we assume
that the Sinarmas Group should spend exactly US$ 1 billion or equivalent to
Rp13.2 trillion to acquire a 85% stake in Brau (through ARMS), then that means
they buy BRAU shares at a price of.. Rp450
per share! Make sense? From the point of view of retail investors,
obviously not! Why did you have to buy BRAU at a price of 450, when you can buy
it at the market price of 82??? (although for the moment can not, because the
trading is currently suspended).
But the same questions
may also arise if you look at the fact that Bakrie Group, when they
successfully retake the 29.2% stake in BUMI from the hand of Bumi Plc, they had
to pay US$ 501 million for the stake, which is equivalent to approximately Rp1,000 per share, or faaaar above its
current market price of Rp51 per share. Interestingly, even Nat Rothschild was
actually not going to sell BUMI at any
price if ain’t forced to do so. So how did these two giants (Bakrie and
Rothschild) got involved in a race to acquire a penniless company, even at a high
price?
And now why even
Sinarmas join the race? Okay, it wasn’t BUMI that they acquired, but BRAU, but
it is because the opportunity lies at BRAU. Sinarmas itself may not be able to
acquire BRAU if not for the default. So think about it: If later BUMI
eventually defaulted as well (so that Bakrie have to sell it off), then
Sinarmas, and possibly also other large groups, may submit a bid for BUMI. The
question once again, what is so good about these BUMI and BRAU?
And if Sinarmas dare to
buy BRAU, even at a price that is far above the market price, does it mean that
smaller investors can also buy the same stock?
Anyway, since the article
is already long enough, then the rest will be discussed next week. But before
that, you might be able to answer the questions above through the comments
field below. A little clue, to be able to answer the questions above, you have
to think like the majority shareholder on BUMI and BRAU, and not merely retail
shareholders who cannot control the company.
Any inquiries about investment in Indonesia Stock Market, please send an email to teguh@averepartners.com.
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