Bakrie, Bumi a losing Indonesian
ticket By Gary LaMoshi
DENPASAR - In democracies, it is not
unusual for candidates to go into debt to finance
their election campaigns. It is also not unusual
to see members of wealthy families, from George
Washington to Franklin Roosevelt to Mitt Romney to
Thaksin and Yingluck Shinawatra, become candidates
for public office.
What is unusual is for
a candidate to be billions of dollars in debt
before beginning a campaign, especially if that
candidate hails from an extraordinarily wealthy
family. Meet Indonesian presidential hopeful
Aburizal Bakrie, a truly exceptional man.
Bakrie has already secured the 2014
presidential nomination of Golkar, the ruling
vehicle of General Suharto's former
authoritarian
regime and still the largest
and most cohesive political party in the country.
Bakrie Group, the family business, is one
of Indonesia's largest conglomerates, with
interests from property to television, plantations
to telecoms. Aburizal, the eldest son of founder
Achmad Bakrie, joined the company in 1972 and
served as its chairman from 1999 to 2004.
Bakrie has retired from his business post,
at least officially, but still controls the
company and is believed to remain involved. The
group's 10 listed companies account for more than
a quarter of all transactions on Jakarta's stock
exchange and have a combined market capitalization
of more than US$10 billion.
Business
success helped to give Bakrie a foothold in
politics. After a decade as the head of the
Indonesian Chamber of Commerce, known as Kadin,
Bakrie unsuccessfully sought Golkar's presidential
nomination in 2004.
The winner of that
election, Susilo Bambang Yudhoyono of the
Democratic Party, tapped Bakrie as Coordinating
Minister for the Economy in a coalition cabinet. A
year later, he was moved sideways to Coordinating
Minister for People's Welfare.
In 2009, he
left the cabinet and was elected chairman of
Golkar. Last year, he won the party's presidential
nomination. In part, Golkar turned to Bakrie
because of his wealth, which party leaders likely
expect him to spread among the party faithful. But
that may have been a false perception based on
history rather than fact.
After topping
the Forbes list of richest Indonesians in 2007,
Bakrie fell out of the top 40 this year. The
Bakrie Group has been plagued by rising concerns
over debt estimated at more than $10 billion, much
of it secured by shares whose prices are falling
and other assets that may be overvalued.
The controversy over London listed Bumi
Plc provides insights into how the Bakries operate
and the group's current dire financial situation.
In January 2011, Nathaniel Rothschild of
the legendary British financial family teamed with
the Bakries to place partial ownership of selected
group coal assets into a London shell company they
renamed Bumi. Indonesia ranks among the world's
lowest-cost coal producers and profits from its
proximity to energy hungry China.
The Bumi
deal, valued at $3 billion, was meant to combine
the energy assets and political clout of the
Bakries with the Rothschild reputation. The object
was to give the Bakries access to London's capital
market and investors access to juicy returns from
a fast growing development market in London's
trusted market with its world class regulatory
standards. Instead, the Bumi deal has confirmed
many prejudices against investing in Indonesia.
Bumi shares debuted in London in July 2010
at 1,000 pence and soon began to nosedive, losing
as much as 85% of their initial value. Their
trading has coincided with a fall in coal prices
and demand, but Bumi faces some company-specific
issues.
Some assets injected into Bumi -
including an Indonesia-listed coal producer
confusingly called Bumi Resources - carried heavy
debts, and Bakrie Group shuffled shares and assets
to avert default. That is standard operating
procedure for many of Indonesia's politically
connected businesses, which always seem to find a
kindly buyer or banker to come to the rescue of
their frequently heavily leveraged enterprises.
Within months of the listing, Rothschild
was complaining about the state of Bumi's
Bakrie-related finances. The ensuing boardroom
battle led to Rothschild's ouster as co-chairman
of Bumi. His replacement, Indonesian tycoon Samin
Tan, paid the Bakries $1 billion for half of their
Bumi stake. But even a Bakrie ally could not
ignore the share price slide or the red flags
Rothschild had raised.
Shell game
In September, Bumi announced it was investigating
"potential financial and other irregularities" in
connection with its Indonesian assets. Focuses of
the probe reportedly include $394 million in
development funds that seemingly evaporated from
the Bumi balance sheet and asset transfers to
friendly parties at cut rate prices. A final
report from investigators could come this month.
With Bumi's share price recovered to
around 270 pence, 73% below its issue price,
Rothschild and the Bakries are now competing to
buy each other's stake at a discount. British
media say the Bakries are ready to give Tan the
full price he paid for his shares while asking
Rothschild to return the stake he was granted for
brokering the deal and offering other stockholders
465 pence, less than half of the shares' original
value.
For the Bakries, that's business as
usual: take care of your friends and get back what
you sold cheap. Whatever the outcome of the
negotiations and investigations, electing a key
figure in the Bumi deal as Indonesia's next
president would hardly represent the best way to
restore the country's reputation as a foreign
investment destination.
For more than a
decade, the Bakries have been fighting government
tax collectors over unpaid assessments from their
coal business that total more than $250 million.
Convicted corrupt tax official Gayus Tambunan
skipped jail to watch a tennis tournament in Bali
in November 2010 at the same time Bakrie was
there. Bakrie denies they met at the match.
However, Gayus has since told investigators that
he received $7 million from Bakrie Group companies
to spread around the bureaucracy to settle the
case.
Bakrie orchestrated attacks on
former finance minister Sri Mulyani Indrawati, an
internationally respected technocrat who pushed
hard to collect that tax bill. Widely regarded as
a rare effective and honest government official,
Mulyani resigned in May 2010 amid relentless
pressure over the Bank Century bailout two years
earlier and became a deputy director at the World
Bank. Mulyani and Bakrie may get an opportunity to
settle the score as opponents in next year's
presidential election.
There's also the
matter of the Sidoarjo mud flow that began in May
2006. Lapindo Brantas, a Bakrie company, was
drilling for natural gas in the area when mud
began flowing from one of its holes, eventually
forcing 9.000 villagers to abandon their homes.
Scientists say the drilling caused the mud flow
but the Bakries have denied it.
The group
later tried to sell the company, in one
transaction for the sum of $1, but the deals were
barred by authorities that suspected an attempt to
evade potential liability. A police investigation
to assess blame closed after three years without
reaching any conclusions, while a parliamentary
panel led by Golkar allies absolved the Bakries
based on questionable evidence.
Bakrie
says his companies have paid Sidoarjo residents
hundreds of millions of dollars in compensation,
but whatever has been paid has not come close to
satisfying demands or stopping the mud, which is
expected to flow for at least another decade.
Little wonder then that Bakrie was not among the
18 most popular presidential candidates in a
recent survey.
Some Golkar politicians are
already calling on Golkar to reconsider the
nomination, in light of his lack of popularity and
his dwindling financial resources. Family history
indicates there's a good chance for Bakrie to find
a way to replenish his coffers. But rehabilitating
his image with global investors and the Indonesian
electorate will likely prove a far bigger
challenge.
Longtime editor of
award-winning investor rights advocate
eRaider.com, Gary LaMoshi has written for
Slate and Salon.com, and works an adviser to
Writing Camp (www.writingcamp.net).
He first visited Indonesia in 1994 and has been
watching ever since.
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