Bumi – clock ticks ever closer to the midnight hour…

9 mins. to read

UPDATE – From the Indonesian Press overnight – “Indonesia: Bakrie Cashed Up, Ready for Bumi Battle”. “The Bakrie Brothers are far from finished, they are cashing up and we believe they are building a war chest to rebuild Bumi and rid themselves forever of Rothschild and his public noise.”

It seems they are selling off certain of their companies in Indonesia including Bakrie Toll Road in order to raise the necessary funds to buy out PT Bumi Resources & Berau Coal from Bumi Plc. This is far from finished and as we have said before, the only way for the Bakries to cleanly obtain their prized assets back is to bid outright for the stock they and Tan do not own in Bumi Plc. Looks like £5-6 would be required however for the minorities (ex Natty) to succeed.

With the Board meeting at Bumi scheduled for today (oh to be a fly on that wall!) to discuss the 2 competing proposals presented by “Ol Nat King Coal” Rothschild and in the opposing camp, now arch enemy, the Bakries and Tan, the day of resolution for the minorities caught in the cross fire gets ever closer…

Ol Natty

A fantastic piece of investigative journalism from the Telegraph below that is a must read tells a sorry tale of apparrent crookery and machiavellan tactics by certain of the Pt Bumi Resources Board members with the seeming intent to deprive other shareholders of true value. There is only one way this can end in our opinion and this is with a complete divorce of the Bakries. Question is whether the Bakries will be forced/check-mated to pay full value or whether Rothschilds alternate plan will win the day. Either way we think the end result in at least a pound north of here and as the chart below seems to pressage now we are clear through the 2 month flag.

From the Telegraph

The coal miner’s board meets to review a report by law firm Macfarlanes. It goes to the heart of the most high–profile float fiasco the London market has seen in years. Namely, the one that saw Nat Rothschild, scion of the famous banking family, team up with Indonesia’s politically–wired Bakrie family to create a £3bn London–listed coal miner.

For investors, who have lost 70pc of their money since the June 2010 float, the last thing they needed was a whistleblower pitching up in September with a list of alleged “financial and other irregularities in the company’s Indonesian operations” – with the main suspect the Bakrie–controlled Bumi Resources, one of Bumi’s key assets in which it has a 29pc stake.

News that Macfarlanes was crawling all over the books took 25pc off the shares in a day, saw the exit with “immediate effect” of Bumi non–exec Ari Huda, the president of Bumi Resources, and left Rothschild and the Bakries at daggers drawn – both pitching rival plans to clean up the mess. On Friday, Indra Bakrie quit as co–chairman.

Macfarlanes has investigated a number of alleged “irregularities”. But, among them, is a series of mind–boggling transactions, whose denouement is yet to play out. They concern two mining infrastructure companies sold out of Bumi Resources less than a year before Rothschild did his fateful deal. They were sold for what now looks a song – little more than $190m (£119m). Indeed, a 30pc stake in one of the companies was sold for just $1 a year after Bumi bought its 29pc stake in Bumi Resources.

Investors may struggle to see the funny side but these companies have since been refinanced with more than $1bn of debt and are now being sold again for $600m to a company called Benakat Petroleum Energy – alongside a fresh $150m refinancing, led by Nomura, and dubbed “Project Magnum”. If that looks like a major leak of value from Bumi Resources, it gets worse.

The two companies, Mitratama Perkasa (MP) and Nusa Tambang Pratama, own the ports, conveyors and crushers vital to getting the coal out and shipped from Bumi Resources’s key Kaltim Prima Coal and Arutmin mines – assets owned in a 70:30 joint–venture with Tata Power.

Now Bumi Resources is having to pay to lease back the vital equipment. And guess what? The lease rates at Kaltim have gone up by 50pc despite the falling coal price. What’s more, the two companies – now repackaged as Astrindo Mahakarya Indonesia (AMI) – have turned out to be corkers.

Less than a fortnight ago, Michael Wong, a Benakat director, declared that thanks to the acquisition of AMI, Benakat’s earnings were “projected to drastically increase from $40m in 2012 to $415m in 2013”. Maybe that explains why shares in Benakat, which puts the deal to a shareholder vote on Friday, rose nearly 40pc in the weeks after the announcement.

Why would Bumi Resources do what looks like such an extraordinarily inept deal as sell two companies owning assets it needs for such a knock–down price?

Perhaps the Bakries are plain incompetent. But another possible theory is that the Bakries sold the companies to themselves in undeclared related–party transactions. More astonishingly still, there is evidence in the Nomura “Project Magnum” document, that the Bakries may also have major interests in Benakat via Bumi Resources’s so–called “development” assets that Bumi has admitted are central to the Macfarlanes inquiry.

Ask Dileep Srivastava, a Bumi Resources director, if this could be the case and he suggests: “Possibly, you need to clean your mind of a conspiracy theory before being able to appreciate facts and figures.” But ask him who MP and NTP were sold to and who owns them now, and he won’t say, blaming his silence on a “court–appointed investigation” into the accounts in Jakarta.

Christopher Fong, the Bakrie spokesman, says simply “you are not correct” that the family has any interest in either of the companies or Benakat but declines repeated requests for further explanation. He draws attention to Benakat’s claims that the current owner of AMI is “a company under the control of Sennelius Thong”.

He is the director of a financial services house in Jakarta, Ciptadana, owned by Indonesia’s Lippo Group. Emails to Ciptadana did not receive a reply.

Meanwhile, in response to detailed questions, Benakat’s corporate secretary Dina Andini would only say that information on “our latest acquisition has been publicly made available to various medias, including … Bloomberg. You are welcome to browse through the articles.” A subsequent email was ignored.

Srivastava insists that “facts and data about Bumi Resources are publicly available with full transparency”. If only it were so. Take MP, which first pops up in the 2006 annual report, bought for $1 but with net assets of almost $17m. On March 31 2010, a sale was agreed for the whole company to Cahaya Pratama Lestari for $120m. At the time, Bank of AmericaMerrill Lynch analysts said they were “baffled” by the deal. But the annual report shows only 70pc was sold, but at a higher price: $190m. The buyer also changed – to Nusantara Pratama Indah. Srivastava won’t say who owns either company.

Mysteriously, by the 2011 annual report, the whole of MP has been sold. Where did the other 30pc go? That doesn’t become clear until 2012’s half–year results. They show Bumi Resources sold a 30pc stake in MP for just $1 to Sumber Engergi Andalan – a subsidiary of Tata Power. There is speculation that Bumi Resources gifted the stake to Tata Power so it would not object to any hike in lease rates.

What of the other business, NTP? It is thought that was held via holding company, Candice. The 2010 annual report shows Bumi Resources sold 100pc of Candice for $1 to Bhira Investments – a Tata Power subsidiary. But Bhira’s 2011 accounts disclose two things. First, that it only owns 30pc of Candice, raising questions over what happened to the other 70pc. Second, that despite buying the company for $1, it had pledged Candice shares as “security for a term loan of up to $300m” with Bank Sumitomo Mitsui Indonesia.

Ask Minesh Dave, Tata Power’s chief representative in Indonesia, to explain how $1 can support $300m and he emails back: “May I request you to kindly refer your queries to Bumi Resources.”

Which brings us to Nomura’s “Project Magnum” document, which shows that NTP now has $600m of debt. Meanwhile, MP has $425m of loans – the result of a refinancing this June led by Deutsche Bank and ICICI Bank. Add in the $600m purchase price and, miraculously, businesses sold for little more than $190m appear to be worth $1.6bn.

Clearly someone has made a lot of money here. Ask Rothschild for comment and he says: “As a shareholder I am extremely concerned about a series of transactions that show MP and NTP were sold out of Bumi Resources for a low price at the expense of the minority shareholders and amazingly that there is no clarity on who these vital companies were sold to or who benefited from the re–financing. I am even more concerned now that we don’t know who is behind Benakat Petroleum but believe Bumi Resources’ business development assets are a major source of funds for Benakat.”

The Nomura document shows that one such development asset – a stake in a company called Java Mitra Sentosa – is now being used to part–finance the purchase of AMI by Benakat. What’s more, Benakat’s majority shareholder, 52pc–investor Indotambang Perkasa, is controlled by “a consortium of investors led by the Jusuf family”.

Huston Jusuf is the owner of Danatama, a Jakarta–based merchant bank, that has dealt extensively with the Bakrie family.

Fong says the development assets have “existed since 2007” and been “disclosed and audited every year”, including in the prospectuses associated with Bumi’s float. “We find it extraordinary that Mr Rothschild now chooses to deny any knowledge of the details of the business development assets when it was not only disclosed during the due diligence but explained in detail to Mr Rothschild himself. While it is disappointing untruths continue to be sent to the media, we have no intention of engaging in a public tit for tat.”

Meanwhile, Deutsche Bank and Nomura decline to comment on who owns the companies they have acted for in the respective MP refinancing and Benakat deals – though banking’s “know your client” rules suggest they must know.

No doubt it is of little comfort to Bumi investors that the complex transactions leading up to the Benakat deal are only one of the issues being investigated by Macfarlanes. But such is the nature of doing business with the Bakries.

Link – http://www.telegraph.co.uk/finance/newsbysector/industry/mining/9735940/Bumi-in-the-spotlight-as-allegations-circulate.html 

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