VZCZCXRO9887
PP RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJA #2096/01 3181135
ZNR UUUUU ZZH
P 131135Z NOV 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 0640
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHMFISS/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
UNCLAS SECTION 01 OF 03 JAKARTA 002096
SENSITIVE
SIPDIS
DEPARTMENT FOR EAP/MTS, EAP/EP, EEB/IFD/OMA, EEB/IFD/OIA,
EEB/ESC/IEC/ENR, EEB/CBA
DEPARTMENT PASS SECURITIES AND EXCHANGE COMMISSION
TREASURY FOR T. RAND
COMMERCE FOR 4430 BERLINGUETTE/KELLY
SINGAPORE FOR S. BAKER
ENERGY FOR PI-32 CUTLER/GILLESPIE
E.O. 12958: N/A
TAGS: ECON EFIN ENRG EMIN EINV ID
SUBJECT: THE BAKRIE GROUP: BUMI SHARE PRICE PLUNGES AS
TRADING RESUMES
REF: JAKARTA 1987
1. (SBU) Summary: On November 6, trading resumed in shares of
Bakrie Group-owned PT Bumi Resources ("Bumi"), suspended
since October 7. The share price immediately fell nearly 10%
until automatic trading limits kicked in and trading was
suspended for the day. Bumi shares met the same fate on the
next five trading days, with the share price falling from IDR
2175 to IDR 1180. Press reports have detailed internal
government of Indonesia wrangling over the decision to resume
trading, including the reported threatened resignation of
Finance Minister Sri Mulyani Indrawati, who favored
resumption. Trading resumption indicates that those in the
government who may have tried to protect Bakrie interests
were unable to continue shielding those interests in the face
of growing pressures from regulators and the investing public
for whom the continued suspension was growing increasingly
difficult. Analysts viewed trading resumption as a win for
financial regulators against interested politicians. It is
not clear whether resumption of trading in Bumi shares will
affect a reported $1.3 billion offer to purchase Bakrie &
Brothers' 35% stake in Bumi, made by Northstar Pacific
Partners, an Indonesian private equity firm affiliated with
U.S.-based private investment firm Texas Pacific Group (TPG).
Despite continued doubts regarding the Bakrie Group's
financial difficulties and Bumi's ultimate disposition, its
large thermal coal resources remain an attractive investment
target if tangled Bakrie Group ownership issues can be
overcome. End summary.
GOI WRANGLING INTENSE
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2. (U) Rumors about government wrangling were fed by the
Indonesia Stock Exchange's (IDX) announcement of its
intention to resume trading in Bumi on November 5, only to
delay resumption upon government request. Press reporting on
the delayed resumption of trading in Bumi shares alleged that
IDX management had been overruled by a government official
"more senior" than Coordinating Minister for the
Economy/Finance Minister Sri Mulyani Indrawati. Reports
continued that the decision to lift the suspension on
November 6 followed a meeting between President Yudhoyono and
Sri Mulyani, when she reportedly threatened to resign. A
presidential spokesman denied that rumor, advising that the
president did not involve himself in such issues. Sri
Mulyani reportedly had been urging resumption of trading in
shares of several Bakrie Group conglomerate companies, which
had been suspended since October 7. A November 10 Jakarta
Post article characterized the fight over trading resumption
in Bumi shares as an "epic battle of capital market integrity
and independence" versus the "financially sophisticated,
politically connected," and concluded that IDX, Bapepam (the
Capital Markets Supervisory Agency) and the Finance Ministry
"had shown real courage and grace under fire in their finest
hour as regulators."
RESUMED BUMI TRADING: LIMITED IMPACT ON BROADER MARKET
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3. (U) On the first day of resumed trading, Bumi's decline
weighed on markets, with the Jakarta Composite Index (JCI)
falling by 4.27% on November 6, a day most bourses fell in
the region. Some 1.9 billion shares of Bumi, equal to more
than 10% of total shares, were reported offered for sale,
indicating the pent-up demand to sell. While Bumi registered
similar declines in share price through November 13, the
broader market either closed higher, or registered only small
declines (down 0.31% on November 11 and down 0.74% on
November 12). (Note: The JCI's 5% decline on November 13
coincided with sharp losses in the region and Bank Indonesia
imposition of new foreign currency regulations (septel).)
BAKRIE GROUP PRESSURED TO DISCLOSE DETAILS OF REPORTED OFFER
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JAKARTA 00002096 002 OF 003
4. (U) Bapepam Chairman Fuad Rahmany announced November 4 an
intention to sanction Bakrie & Bros. if the firm did not make
a full public disclosure regarding terms of the reported
purchase offer and its plans to resolve repo agreements with
brokers (see reftel) during the week of November 3.
Meanwhile, Bakrie & Bros. had requested that trading in
shares remain suspended for an additional 21 to 28 days until
Bumi's puchase could be completed. (Note: Northstar Pacific
Partners manager Patrick Walujo told press on November 10
that the conditional sales agreement, signed October 31, was
exclusive and gave Northstar Pacific Partners 28 days to
carry out due diligence. End note.)
SUSPENSION IN TRADING WEIGHED ON
INVESTING PUBLIC, SOME BROKERS
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5. (U) Local press had reported that the extended halt in
trading of Bakrie Group-owned companies had become
increasingly burdensome to other Bumi shareholders who wanted
to sell. Many shareholders also reportedly faced margin
calls, as the Bumi share prices had dropped sharply (32% on
October 6) before trading was suspended. Many of those
shareholders and their brokers wanted trading to resume. In
consultations with the IDX board and Bapepam, the Association
of Mutual Fund Managers, representing funds valued at IDR 90
trillion with a large numbers of investors, reportedly
favored continued trading of Bumi shares. The brokerage
community was split, with 48 supporting suspension of
trading, 7 supporting continued trading and 22 abstaining,
according to the daily Kompas (November 11).
6. (U) A number of investor community representatives and
brokers had become increasingly vocal about the harm being
done to the reputation of the IDX in the eyes of both
domestic and foreign investors as the suspension in trading
continued. Perceived reputational damage increased following
the November 5 government intervention to delay a resumption
in trading.
WHILE OTHERS FAVORED CONTINUED SUSPENSION
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7. (U) However, other firms and individals which had entered
into repurchase agreements with Bakrie & Bros., in which they
had bought Bumi shares with the agreement of Bakrie & Bros.
to repurchase the shares, feared a resumption in trading
would jeopardize Bumi's possible sale and harm their chances
of being repaid. While the press reported some brokers to be
in danger of falling below minimum mandatory capital
requirements as a result of their Bumi-repo exposure, Bapepam
Chair Rahmany publicly stated that only five brokerage firms
had significant exposure to Bumi repos and the exposure was
not as large as previously reported.
LIST OF POSSIBLE PURCHASERS GROWS
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8. (U) During the last month, there have been numerous
reports about rumored buyers for Bumi. On November 1, a
Bakrie & Bros. spokesman announced that Bakrie & Bros. had
accepted a purchase offer from Northstar Pacific. Northstar
Pacific Partners and TPG are partners in a joint venture
private equity fund ("Northstar Equity Partners") with more
than $300 million in assets reported under management. The
firm is run by Patrick Walujo, described as a former Goldman
Sachs investment banker. Press reports cited one investment
banker as characterizing this deal as "an agreement to agree,
with negotiations at a preliminary stage," and some observers
construed the announcement as signaling an invitation for
other parties to launch competing bids. On November 2,
state-owned mining company PT Tambang Batubara Bukit Asam
also said it had joined a consortium to purchase Bumi.
9. (U) Meanwhile, Philippines'-based San Miguel Corp., was
reported to have confirmed its interest in preparing a
JAKARTA 00002096 003 OF 003
separate bid to acquire 51% of Bumi. Other rumored potential
buyers include U.S. hedge fund Farallon Capital, India's Tata
Group, and Indonesian investment bank PT Renaissance Capital.
Previously rumored potential buyers, including state-owned PT
Aneka Tambang, said they were not a part of the Northstar
consortium, according to press reports.
10. (SBU) Despite the current lack of clarity regarding the
ultimate disposition of Bumi and of the Bakrie Group's
efforts to overcome its financial difficulties, the apparent
interest of U.S.-linked private equity is a notable
development. While many foreign investors have chosen to
exit the Indonesian market at a time of increased risk
aversion, Bumi's large thermal coal resources are an
attractive investment target, if tangled Bakrie Group
ownership issues can be unwound sufficiently to enable the
Group to deliver its 35% stake in Bumi free and clear to one
or more interested buyers.
HUME