CHAN
AKYA Bumi
price crash: A tale of two
princes By Chan Akya
"In India, corruption is under the table,
in China, corruption is over the table while in
Indonesia, corruption includes the table." Anon
(previously quoted in Asia Times Online article
"The
Wages of Corruption", August 19, 2006).
"Bumi launches probe on financial
irregularities" read the mundane business headline
on September 24 as the London markets opened for
trading. The subject of the article was a company
called Bumi PLC, a holding company listed in
Indonesia that owned two major businesses in
Indonesia, namely Bumi Resources and another coal
company called Berau Coal; both are listed in
Indonesia; the two businesses made Bumi the
biggest coal miner in the country.
(For
context, saying "biggest coal miner in Indonesia"
is like
saying "biggest retailer
in the United States" or the "biggest vodka
manufacturer in Russia"; it's big, really big).
Within a few minutes, investors panicked
and sold their shares desperately, pushing stock
prices down over 30% on the day of infamy.
Indonesian markets, which had almost been lazing
into a close by the time the announcement came
out, pushed down the value of the two businesses
listed in Indonesia by similar amounts. Credit
markets froze on the news, as everyone from
Japanese trading houses to Indian stock analysts
and Australian mining experts started counting the
potential impact from the (possible) unraveling of
Indonesia's biggest coal miner.
The tale
goes thus: an ambitious scion of a British banking
dynasty decides to expand his footprint, going
into exotic Asia; he scores a major deal at a
valuation which appears reasonable in the context
of strong growth potential and operating profits.
Then the patina starts wearing off, and pretty
soon everyone is at everyone else's throat.
So what makes this story different from
say the scandals that rocked Enron in the good old
days, or more recently brought Barclays Bank to
the forefront of newspapers? For one thing, the
story brings together two unlikely partners, both
princes and both presumed to have ambitions far
exceeding mere wealth. The two - Nat Rothschild
and Aburizal Bakrie - are household names
respectively in the UK and Indonesia. When they
came together barely a couple of years ago to
launch an audacious capital-raising exercise,
eyebrows were furrowed across both London and
Jakarta.
What was the scion of one of the
banking world's most respected names doing with an
Indonesian businessman-politician, especially in
the shady business of coal (puns intended)? Add to
the intrigue that the venture had been funded with
an empty shell listing in London - essentially
investors had put about US$1 billion on the
strength of the Rothschild name into a company
called Vallar Ltd; this money had been handed over
to the Bakrie family in exchange for the stakes in
subsidiary companies, albeit at a valuation that
left the Bakrie family as major shareholders of
the now-renamed Bumi PLC.
The deal was
complex enough, but its timing was priceless: the
Bakrie family was fending off accusations of
negligence around one of its related businesses
that was at the center of a mud volcano in Java
that killed a number of people, inundated nearby
lands and resulted in clean-up costs estimated to
be as high as $1 billion. Since then, Aburizal
Bakrie has sealed his bid to be the presidential
candidate of the Golkar party in the next
elections, slated for 2014 (in itself something
that raised eyebrows as the announcement was made
almost precociously early in a country where
politics tended to move at a more glacial pace).
Even as Aburizal Bakrie gave up operating
control of his businesses to his siblings and
other kith and kin to focus on his political
ambitions, the Internet has been rife with
conspiracy theories about his continued
involvement in the day-to-day operations of the
far-flung Bakrie group, which operates in real
estate, telecoms, plantations, oil exploration and
coal mining to mention a few.
To be fair,
Aburizal Bakrie deserves credit for business
acumen and strategic planning that people who have
met him talk about in awe. In the aftermath of the
Asian financial crisis, the Bakrie family quickly
emerged as one of the very few non-Chinese-owned
businesses in Indonesia to successfully pay down
its debts and retain management control of the
businesses at a time when foreign creditors were
seizing lucrative businesses by the dozen.
Business and politics, though, mix very
differently in Asia. Whilst in India, businessmen
are essentially forced to (or are motivated to)
buy out politicians, in China many political
bigwigs or their relations have become businessmen
of note much to the embarrassment of the Chinese
Communist Party. In Indonesia though, a curious
dichotomy of sorts was established under the
dictatorial rule of Suharto wherein politics was
the realm of the military elite from Java even as
business were under the nominal heads of
Chinese-owned companies (many Chinese in Indonesia
were already very rich and coddled by Suharto's
predecessor, Sukarno).
"Nominal" being a
key word in the preceding sentence - it was widely
accepted that in order to succeed Chinese
businessmen essentially maintained financial
relations with members of the Suharto clan (who
frequently also ran numerous businesses on their
own account).
As the Asian dominoes
slipped in 1997, the rage of the average
Indonesian was directed at the Chinese businessmen
who were seen to dominate businesses even as
ordinary folks suffered in the crisis; it was the
anger against Chinese businessmen and regime
corruption that eventually toppled Suharto.
(Familiar stuff for anyone reading about
the Arab Spring and other regime changes, right:
except the events in Indonesia preceded the Arab
Spring by over a dozen years.)
In the
aftermath of Suharto, business and politics
realigned (hence the new adage quoted above) with
local businessmen becoming much more prominent.
Military and political bigwigs secured big
concessions in areas such as natural resources and
infrastructure. Foremost in this group of often
relatively young, dynamic and ambitious
Indonesians was Aburizal Bakrie, already involved
for the previous decade in energy deals, including
refineries.
Accounts differ on what really
happened, but there is general consensus that the
Bakrie family made it big on its acquisition of
lucrative coal mines from a couple of foreign
companies; the transaction essentially cemented
the group's cash flows and allowed it to expand
rapidly into other businesses. In almost all
cases, it used significant amounts of external
debt, thereby keeping the rapidly growing
businesses under the control of the family as
against, for example, publicly listing the various
businesses which may have diluted the family's
position.
Along the way, every time the
Bakrie family needed money in circumstances that
were generally considered impossible for most
banks, somehow the money always came to them,
particularly from banks that had significant
private banking operations. We will certainly
never know the truth of the routing and sources
and influence of such money flows.
What we
do know is that for some reason, not satisfied
with the rapid expansion of personal wealth (or
perhaps because of it) at some point in the past
five years Aburizal Bakrie may have chosen to
enter politics strongly. Others contend that the
decision was taken well over a decade ago, and
this commitment was part of the support he
received from some backers.
Here is why
the Internet is abuzz on that issue - every ruler
of Indonesia since independence from the Dutch has
come from Java; and most have been endorsed
directly by the hereditary clan chiefs of Java.
For someone like Aburizal Bakrie, who hails from
Sumatra rather than Java, and is furthermore said
in some quarters of being of Arab descent, that is
quite something. Thus, securing a different type
of ruler is likely to have long-term consequences.
That is what makes what happened next so
much more curious - being picked as the investment
target by the Rothschild-backed Vallar suddenly
brings wider overtones to the matter. As
historians gleefully recount, Europe's ancient
banking families were at the center of many a war
in the continent from the middle of the 17th
century; that a member of one of the banking
dynasties should somehow be involved in a
modern-day geopolitical adventure is an intriguing
prospect.
Whatever be the motivations and
the grand plan when this was concocted, the fact
is that Bumi has been in a tailspin pretty much
since its listing in London; starting at 1,000p
(or 10 pounds a share), the shares closed barely
above 160p a share on Monday. Along the way,
specifically last year, there was a colorful drama
between the Rothschild group and the Bakrie family
by way of a public spat over the company's
finances. A ham-handed attempt to remove the
Rothschild influence was thwarted by independent
directors, but he lost his position as co-chairman
on that particular stunt.
The funny thing
for many observers (but certainly not for
investors), including hardened Asian journalists,
was that the announcement of a probe by Bumi was
itself not a big deal when one considers the
colorful history of many an Asian billionaire; in
that context a decline of 22% on Friday (before
the probe was announced on Monday by the company)
and a decline of another 30%-plus on Monday
clearly showed that a bigger confidence issue had
come to the fore.
Had one of the main
shareholders bailed?
This story, as with
most Asian sagas, is set to unravel further. At
its heart is the reputation of a centuries old
banking dynasty in Europe, an Indonesian
businessman and a whole lot of geopolitical
overtones.
Now who was it who said finance
was boring?
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