Bakrie’s Bumi exit could cost $1.6 billion

JAKARTA. The Bakrie Group’s plan to take over all of Bumi Plc’s Indonesian assets could prove to be “a tough nut to crack”, according to analysts, as a major partner has demanded a break-up fee — in cash — that could push the value of the proposed transactions to at least US$1.6 billion.

Jakarta-listed PT Borneo Lumbung Energi & Metal says the group’s proposal would require the dissolution of two special purpose vehicles (SPVs) they created together in 2011.

For the dissolution to happen, compensation is being sought as the company vows to recoup the $1 billion invested when it purchased half of the Bakrie Group’s stake in Bumi Plc through the creation of the SPVs.

The SPVs — Borneo Bumi Lumbung Energi Pte Ltd and Bumi Borneo Resources Pte Ltd — each controls a 23.8 percent stake in Bumi Plc.

In less than one year of partnership, Borneo saw its investment, which was backed by loans from Standard Chartered Bank, tumble as Bumi Plc’s share price dropped significantly due to a bearish coal market and an internal dispute involving the Bakrie Group and the company’s founder Nathaniel Rothschild.

Borneo has stated that it would unlikely accept compensation in the form of share ownership, a practice Bakrie Group has frequently performed. “We prefer in cash,” Borneo president director Alexander Ramlie said last week.

Alexander said a negotiation was currently underway on the compensation, separate from the negotiation between Bumi Plc’s shareholders on the Bakrie Group’s proposal for a share swap and $1.2 billion cash for all of the London-listed company’s assets in Indonesia.

Bumi Plc currently controls a 29.2 percent stake in PT Bumi Resources — Asia’s largest thermal coal exporter — and a 84.7 percent stake in PT Berau Coal Energy.

“In principal, I think they agreed on financial compensations. It’s crucial that we’re in agreement with them on the dissolution of the SPVs,” Alexander said.

Bumi Plc said that it had appointed the Rothschild Group to review the proposal and made a recommendation to independent directors as well as the board. However, the board issued a statement that it would not review the proposal until an investigation into alleged financial and other irregularities in Bumi Resources and Berau was completed. London-based law firm Macfarlanes is expected to conclude its investigation this month.

Alexander, who is also a non-executive director in Bumi Plc, said that all shareholders expected the board’s recommendation and did not want to become “stuck” in the current situation.

“I don’t believe the independent directors will reject [the Bakrie Group’s] offer without a counter offer,” he said.

Alexander played down doubts that the Bakrie Group could not afford the transaction and compensation for his company.

“We saw them bankrupted in 1997, but then they rose again. In 2005 and 2008, they almost went bankrupt but then rose again. If we look at the history, I’m sure they can rise again,” Alexander said.

Bakrie Group’s spokesperson Fong said recently that “all funds were in place and everything was prepared to meet the offer to the Bumi Plc board. Fong also said that Credit Suisse was representing the group in the offer.

Capital market analyst Yanuar Rizky told The Jakarta Post over the weekend that the compensation sought by Borneo could reach $400 million.

“Borneo’s position is 50/50 and not affiliated with Bakrie Group. Therefore, given that Bumi Resources and Berau will be pulled out from Bumi Plc, Borneo must receive the compensation.”

“It’s unlikely that Borneo will get its $1 billion back [from the transaction alone] because Bumi Resources and Berau’s market price and book value have been declining due to lower coal prices. [The compensation] won’t be too far from $400 million,” Yanuar said. (Raras Cahyafitri/ The Jakarta Post)