Indonesia may be unfairly tarred by Bumi’s brush
By Wayne Arnold
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Bumi Resources is not a metaphor for Indonesia. The heavily indebted coal miner, currently at the centre of a financial probe and corporate governance spat, has said it may have to sell assets or shares. With coal prices weak, the drama at Bumi Resources spells more trouble for creditors and shareholders, including those of its London-listed parent. Indonesia must hope it is not unfairly tarred by the association.
Bumi Resources is famous in Indonesia as the company with the richest coal mines, but whose former controlling shareholders, the powerful Bakrie family, left it buried in debt. The latest twist in the saga comes from an unidentified whistleblower who has flagged at least $500 million in questionable assets. With coal prices already falling, that’s cast a further pall over the company’s prospects.
On paper, Bumi Resources seems to have enough cash coming in to stay solvent. But with net debt at 8 times equity and doubts swirling about its other assets, refinancing the roughly $1 billion of debt Standard & Poor’s estimates will mature over the next year could be a tall order. Bond markets suggest Bumi would currently have to pay an interest rate of at least 20 percent a year for 5-year money.
That isn’t good news for shareholders of Bumi Resources or those of Bumi PLC, the London-listed company that owns a 29 percent stake. The more than 80 percent drop in Bumi PLC’s shares in the past year has already forced the Bakrie family to renegotiate a $437 million loan backed by its stake in the company. It’s also likely to frustrate Bumi PLC chairman Samin Tan, who bought his 23.8 percent stake in the London-listed company from the Bakries in January — as well as Standard Chartered, which lent him the $1 billion to buy it.
The danger for Indonesia is that the Bumi saga may be seen as a cautionary tale for prospective investors in the country. Yet such white-knuckle debt levels are rare: if anything, Indonesian companies are borrowing too little. The average net debt to equity at Indonesian companies covered by Citigroup is just 12.7 percent. Indonesia has no shortage of investment perils, including poor corporate governance. But investors should avoid tarring it with Bumi’s brush.