The brawl over Adaro
Beckkett Pte published half-page announcement in some Indonesian newspapers on Monday. Beckkett warned all parties not to approve or endorse any actions related to the disputed shares of PT Adaro Indonesia, the largest coal mining company in the country.
Why?
Because, Beckett lawyer Todung Mulya Lubis said, his client want to get back the Adaro Indonesia shares sold by Deutsche Bank to PT Dianlia in 2001. Why? Because the company believes the price wasn't right, too low. Dianlia acquired 40% shares of Adaro at US$44 million from Deutsche Bank after Beckkett defaulted on US$110 million loan pledged with Adaro shares. Beckkett seeks a claim for damage at the amount roughly US$400 million. Imagine that number, Beckkett could buy all the newspapers in the country with every day announcement one full page.
Was the deal really too low?
Combination of China's increasing demand for energy and the Iraq war contributed to step increase in oil price and other energy sources. Without one of these two significant factors, the oil price would still increase but not at the pace like what's happened in the last three years. The Iraq war was a big surprise for the energy market, while China factor was well calculated.
Why?
Because, Beckett lawyer Todung Mulya Lubis said, his client want to get back the Adaro Indonesia shares sold by Deutsche Bank to PT Dianlia in 2001. Why? Because the company believes the price wasn't right, too low. Dianlia acquired 40% shares of Adaro at US$44 million from Deutsche Bank after Beckkett defaulted on US$110 million loan pledged with Adaro shares. Beckkett seeks a claim for damage at the amount roughly US$400 million. Imagine that number, Beckkett could buy all the newspapers in the country with every day announcement one full page.
Was the deal really too low?
Combination of China's increasing demand for energy and the Iraq war contributed to step increase in oil price and other energy sources. Without one of these two significant factors, the oil price would still increase but not at the pace like what's happened in the last three years. The Iraq war was a big surprise for the energy market, while China factor was well calculated.
As the oil price moves into crazy high, alternative source of energy also increased significantly. Natural gas has been closely linked to oil. While the price of coal is sometimes linked to the oil price, the actual situation proves that this belief is less true than claimed. But I have to say the war has changed the situation.
According to Energy Ministry's statistic, Indonesia's coal production increased significantly from 53.8 million tones in 1997 to 132 million tones in 2004. During this period, export also grew from 40 million tones to 92 million tones.
Adaro's output and export also moved in the same direction. The company's output was only 9 million tones in 1997, but had surpassed 24 million tones in 2004. It's export doubled from 7.98 million tones to 15.1 million tones in the period.
During this period, a lot of changes in Indonesia's coal mining business. PT Bumi Resources acquired 80 percent shares of PT Arutmin Indonesia from BHP Billiton in October 2001 at US$148.5 million. In 2003, Bumi also acquired another 20 percent shares of Arutmin at US$35 million.
Acquisition of 80 percent shares of Arutmin with 9.5 million output in 2001 could be seen a better deal than the Adaro's 40 percent share with time difference of just few months later. But Adaro deal could be considered better than the Arutmin 20 percent acquisition in mid-2003.
In the same year, Dianlia bought New Hope's 41 percent stake in Adaro for US$378 million. In June 2005, a consortium of international banks and strategic investors bought Adaro from Dianlia for about US$950 million. The new foreign investors include the Government of Singapore Investment Corp., the Kerry Group, and the private-equity arms of Goldman Sachs Group Inc and Citigroup Inc. How about the price of US$10.5 million for 34 percent shares in Indominco (sold by Indocement in 2002) with coal output of 5.3 million tones?
Imagine the recent acquisition price of KPC and Arutmin at US$3.2 billion with combined coal production of the same size with Adaro's 2004 output. We may say the Adaro deal last year was way to cheap, right? Or we could say the KPC-Arutmin deal is way too expensive. But that could be considered fair if we compare the coal price in 2001 at US$17 per ton against the highest of US$54 per ton as of September 2005, even though dropped to below US$40 per ton in November 2005.
Coal price is one thing. How about intangible values such as macro-economy stability, security, or even the step increase in stock market index. Take Jakarta's Composite Index which grew from 475 in February 2002 (when Dianlia acquired Adaro shares) to 1.311 yesterday's closing?
Who will make the right decision on this valuation dispute? The court?
FYI, few weeks ago, in Singapore High Court session, a noted Indonesian economist, who wrote a column at Kompas daily testified as an expert, reportedly, upon Beckkett's request. Some Indonesian reporters were also there on the case in Singapore, with expenses paid by at least one public relations group linked to the plaintiff.
The fact that Indonesian Supreme Court rulling neither endorsed nor rejected the lower court rullings might reflect the complexity of the case. And that might open an out-of-court settlement. But as there is no sign that parties involved in the dispute would take the route, we should wait the Singapore Court verdict first. This is gonna be a long legal battle.
According to Energy Ministry's statistic, Indonesia's coal production increased significantly from 53.8 million tones in 1997 to 132 million tones in 2004. During this period, export also grew from 40 million tones to 92 million tones.
Adaro's output and export also moved in the same direction. The company's output was only 9 million tones in 1997, but had surpassed 24 million tones in 2004. It's export doubled from 7.98 million tones to 15.1 million tones in the period.
During this period, a lot of changes in Indonesia's coal mining business. PT Bumi Resources acquired 80 percent shares of PT Arutmin Indonesia from BHP Billiton in October 2001 at US$148.5 million. In 2003, Bumi also acquired another 20 percent shares of Arutmin at US$35 million.
Acquisition of 80 percent shares of Arutmin with 9.5 million output in 2001 could be seen a better deal than the Adaro's 40 percent share with time difference of just few months later. But Adaro deal could be considered better than the Arutmin 20 percent acquisition in mid-2003.
In the same year, Dianlia bought New Hope's 41 percent stake in Adaro for US$378 million. In June 2005, a consortium of international banks and strategic investors bought Adaro from Dianlia for about US$950 million. The new foreign investors include the Government of Singapore Investment Corp., the Kerry Group, and the private-equity arms of Goldman Sachs Group Inc and Citigroup Inc. How about the price of US$10.5 million for 34 percent shares in Indominco (sold by Indocement in 2002) with coal output of 5.3 million tones?
Imagine the recent acquisition price of KPC and Arutmin at US$3.2 billion with combined coal production of the same size with Adaro's 2004 output. We may say the Adaro deal last year was way to cheap, right? Or we could say the KPC-Arutmin deal is way too expensive. But that could be considered fair if we compare the coal price in 2001 at US$17 per ton against the highest of US$54 per ton as of September 2005, even though dropped to below US$40 per ton in November 2005.
Coal price is one thing. How about intangible values such as macro-economy stability, security, or even the step increase in stock market index. Take Jakarta's Composite Index which grew from 475 in February 2002 (when Dianlia acquired Adaro shares) to 1.311 yesterday's closing?
Who will make the right decision on this valuation dispute? The court?
FYI, few weeks ago, in Singapore High Court session, a noted Indonesian economist, who wrote a column at Kompas daily testified as an expert, reportedly, upon Beckkett's request. Some Indonesian reporters were also there on the case in Singapore, with expenses paid by at least one public relations group linked to the plaintiff.
The fact that Indonesian Supreme Court rulling neither endorsed nor rejected the lower court rullings might reflect the complexity of the case. And that might open an out-of-court settlement. But as there is no sign that parties involved in the dispute would take the route, we should wait the Singapore Court verdict first. This is gonna be a long legal battle.
Labels: Bumi Resources, COAL, Goldman Sachs
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posted by yosef at 8:39 PM
1 Comments:
Based on your professional opinion, is Saratoga's acquisition of 40% stake in Adaro a short or long term move? We have seen how the Bakrie group just sold its ownership in KPC and Arutmin for a staggering amount, pocketed a handsome return.
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