Thursday, February 02, 2006

Amien Rais, Freeport, & Bumi Resources

Bisnis Indonesia quoted an anonymous source in its headline today saying after the merger of PT Bumi Resources Tbk and PT Energi Mega Persada Tbk, both are linked to Bakrie Family, the new entity will likely pursue a bigger move, acquiring PT Freeport Indonesia, a subsidiary of US-based Freeport McMoRan.
Bumi has a market capitalisation of $1.76 billion. It controls PT Kaltim Prima Coal, the operator of one of the world's largest thermal coal mines in East Kalimantan province and PT Arutmin Indonesia (also a big coal producer in Indonesia). The market value of Energi, a provider, developer and explorer in the upstream oil and gas business, is $841.7 million. A Bumi-Energi merger would then create a giant in mining business.
Few nights ago, I wacthed a dialog at Q Channel with Amien Rais (former Assembly Speaker and founder of National Mandate Party or Partai Amanat Nasional, PAN) and Tjatur Sapto Edi (House of Representative member of PAN) as panelists. The main topic was about Freeport Indonesia, from various perspectives, including the controversial report of Freeport's payment to Indonesian military officers and environmental problems.
Amien borbarded audience with his rhetoric statements. He urged government to close down Freeport's operation and launch investigation on both on aledged corruption and environmental problems. Amien also accused foreigners, Freeport and Newmont, didn't pay taxes according the rules. On top of that, 85 percent of Freeport's revenues went to overseas while Indonesia only enjoy the remaining 15 percent.
Newspapers have published his statements and portrayed him both as environmentalist hero and a true nationalistic leader. Some people praised Amien. But more and more readers sending letters to doubt Amien's real intention and called him a too-late-a-hero. They raised the same question of why all of a sudden Amien care about Freeport's aledged wrongdoing while he didn't take the chance during his high-profile years as Assembly Speaker, the highest constitutional body that could even fire a president?
Some even called Amien as toothless lion, that he has the guts to speak out on Freeport's wrongdoing when he has no authoritative power anymore in his hands. Take a tour to readers letter to Kompas, Media Indonesia, Indosiar, Gatra, and other newspapers. We'll find more people denounced Amien even though they, as I do, agree with most of the content in New York Times report which Amien mentioned as the background of his 'interests' on Freeport.
I'm not sure about the answer. But one thing is clear, someone might keen to takeover Freeport. But since Freeport is a big company, no way that Indonesian company could do that at market price. They could only do that at discounted price. And a huge discount would only a possibility if Freeport is under heavy pressure.
Bakrie Group, a company controlled by Aburizal Bakrie (coordinating minister for people's welfare affairs and former coordinating minister for the economy), got 9.36% shares of Freeport Indonesia in 1992 through an investment company PT Indocoper Investama. But in 1998, PT Nusamba Minerals Indonesia, a company owned by Mohammad 'Bob' Hasan, former president Soeharto's golf buddy, acquired the shares from Bakrie.
The latest report from Freeport stated that Indocoper still owns 9.36% shares in the company. But nobody knows who owns Indocoper right now. In the last few years, newspapers published rumors that the family wanted to buy Freeport shares desperately. Bakrie denied that formally. But the Bisnis Indonesia report, if it's true, would confirm that.
Other business groups are also vying the same opportunity. Last year, state-owned mining company PT Aneka Tambang (Antam) Tbk expressed their interest to acquire Indocoper shares. Indonesia government also has 9.36% shares in Freeport. Antam, a listed company, even wanted to acquire both government and Indocoper shares. The problem was the financing. Total value of such acquisition could reach US$1.4 billion.
But I prefere to believe that Bakrie has the experience to do such a leveraged buy out, just like when Bumi Resources takeover Kaltim Prima Coal (KPC) from Rio Tinto and Beyond Petroleum few years ago. It was CSFB and Merril Lynch that gave financing for Bumi to acquire KPC. Both CSFB and Merril Lynch are the main creditors for Bumi Resources and Energi Mega at the moment.
Bakrie Family could get US$1.5 billion out of Bumi and Energi, and that would be enought to launch a LBO on Freeport. A heavy political pressure might works again as it was excellent on Rio Tinto and BP.
But why Amien Rais and PAN have been so aggresive to push the button?
It is true that House Deputy Speaker Soetardjo Soerjogoeritno (from PDI-P) asked Amien to deploy PAN in the Freeport investigation. Some says that PAN want to capitalize the case for its political benefit ahead of the 2009 election which is far away still. Meanwhile people who believes in conspiracy theory suspicious about Bakrie simply because of earlier report that Bakrie was lending hands to help PAN with the almost zero rental fee for a building in Jakarta as PAN's headquarter. reported the story few months ago only to be denied by the party. PAN Chairman Sutrisno Bachir is a close friend of both Amien and Bakrie. But I'm not sure whether such friendship has something to do with the fuss over Freeport....I believe one thing...that Amien has clean record. He might be naive, but he wouldn't take personal benefit out of this saga.

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Anonymous Anonymous said...

Very interesting. Please keep us posted on the developments regarding the merger, if it happens, and the possible freeport buyout.

February 03, 2006 9:08 PM  
Anonymous Anonymous said...

You state: It was CSFB and Merril Lynch that gave financing for Bumi to acquire KPC. Both CSFB and Merril Lynch are the main creditors for Bumi Resources and Energi Mega at the moment.

Actually, Merrill was not involved in the original acquisition financing for KPC, and while Merrill and CSFB arranged the major current financings for Bumi and Energi Mega, it would be inaccurate to refer to them as major creditors. Like most itermediaries, they syndicate most of the credit exposure.

February 04, 2006 4:56 PM  
Blogger yosef ardi said...

Financial Report as of September 30, 2005 from both companies put Merril and CSFB as major creditors. No explanation in their reports about members of such syndication.

February 04, 2006 7:49 PM  
Anonymous Anonymous said...

"Bakrie Family could get US$1.5 billion out of Bumi and Energi, and that would be enough to launch a LBO on Freeport".

Assuming that Bumi+Energy will be used as launching pad for the LBO, that would mean Bakrie will have to pledge their ownership for new loan ? While at the same time both Bumi & Energy have already been pledget to current creditors.

it'll be interesting to see how they do it. truly it's not something that they taught at Harvard :)

February 06, 2006 3:22 PM  
Anonymous Anonymous said...

It was UOB Asia and Renaissance Capital who arranged the KPC acquisition financing for Bumi, with a US$404,137,956 financing package in connection with the repayment of KPC's then existing debt and to part-finance the acquisition. The facility was closed on 10 Oct 2003.

June 28, 2006 11:36 AM  

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