By Lawrence White and Janeman Latul, Reuters
Coal miner Bumi Plc appeared to have it all: big production and reserves, solid political connections in high-growth Indonesia and the credibility of a London stock exchange listing.
But for the second time in six months, a collapse in the share-price has triggered a covenant breach for a loan to the Bakrie family, a pivotal Indonesian shareholder.
This time, the notice was about a $437 million loan for which the Bakries pledged their 23.8 percent of Bumi as collateral. The stock has tumbled 43 percent this year.
The Bakries, whose scion Aburizal Bakrie has his sights on getting elected as Indonesia's president in 2014, make no secret of their strategy of leveraging up their businesses with loans backed by the shares.
They have until Friday to take action to stave off a possible declaration of default on the loan.
"When share prices collapse or crash, they are in trouble, and this keeps happening," said Fadlul Imansyah, equity fund manager at Indonesia's CIMB Principal Asset Management which has assets of $163 million and has been reducing its stake in a Bakrie-connected company, Bumi Resources.
"I have no doubt that (the Bakries) will finally pay their debts as before, but some investors are exhausted," he said.
The Bakries have slipped out of past debt trouble, sometimes with the forbearance of banks and investors including Credit Suisse and London financier Nate Rothschild, who set up Bumi and formed a partnership with the Bakries.
Like dozens of highly-leveraged Indonesian groups, the Bakries defaulted on foreign debts during the 1997-98 Asian financial crisis. Helping the group revive was Credit Suisse, which has been a lifeline for the Bakries, who acquired hefty Indonesian coal interests after that crisis.
According to sources familiar with the $437 million loan, it was Credit Suisse that sent the note on the covenant breach on behalf of lenders.
Sources said the notice required Bakrie Group to bring back the loan's collateral coverage to a level that would require depositing cash of around $100 million with lenders.
Failure to do so by an April 27 deadline would constitute a default that could lead to lenders demanding prepayment of the full $437 million loan.
Bumi PLC has declined to comment. A director at the Bakrie & Brothers, which took a portion of the $437 million loan that does not require a top-up, has said. "We are not in any default situation with our loan at the moment."
One lender involved in the negotiations over the $437 million loan in jeopardy told Reuters that creditors are likely to give the Bakries time once again to come up with more funding, but the question is how long they will wait.
The decline of Bumi Plc's share price, and that of its Jakarta-listed subsidiary Bumi Resources, suggests that some equity investors have already lost faith.
Shares in Bakrie & Brothers, the Jakarta-listed holding company for the family's business interests, have traded at what's called an "exchange floor value" of just 50 rupiah ($0.01) since mid-January, compared with 80 rupiah in June last year. Stocks on the Indonesian Exchange cannot fall below 50 rupiah and there is no threat of delisting, so they simply languish on the exchange at this basement value.
Last October, the Bakries averted a $1.34 billion default, as shares in Bumi Plc - used as collateral - slumped 28 percent in four weeks before a last-minute solution, which involved the sale of half of Bakrie's stake to Indonesian investor Samin Tan.
At one stage, Bumi's share-price was also impacted by friction between Rothschild and the Bakries. At a shareholders meeting in March, Tan became Bumi's co-chairman in place of Rothschild, who remained on the board.
Rothschild established Vallar, the precursor to Bumi Plc, as a London-listed company that would acquire stakes in emerging markets natural resources companies and try to improve them with a particular focus on corporate governance.
"We hoped that Rothschild's vocal and persistent support for better corporate governance at Bumi would have an improving effect on the share price, but since he was kicked out [of the co-chairman role] that hasn't happened," said Frederick Tanggela, an analyst at PT Bahana Securities in Jakarta.
On November 8, Rothschild wrote a letter to the then-president of Bumi Plc, Ari Hudaya, saying that Bumi's Indonesian subsidiary Bumi Resources needed a major overhaul of its corporate governance. The letter was leaked to the media and contained strong criticism of the Indonesian company.
Referring to a Bumi Resources announcement that it had refinanced $600 million of China Investment Corp. debt, Rothschild wrote that this was refinancing as opposed to repaying debt, despite the company holding some $867 million of investments and other assets on its balance sheet that he said were unrelated to its coal and base metals businesses.
"The existence of these assets are well known to the investment community...and certain of these assets are invested with connected parties (eg Recapital, Bukit Mutiara). This is one of the principal reasons why PT Bumi Resources shares trade at a significant 'corporate governance discount' to the broader Indonesian coal sector," he wrote.
On Monday, shares in Bumi Plc dropped 7.6 percent Monday following news of the potential covenant breach, while shares in the Jakarta-listed Bumi Resources in which it holds a 29 percent stake fell 7.4 percent.
Bumi Plc shares were worth 10 pounds ($16.15) when the company listed on July 5 2010, reached a high of 14 pounds on April 11, 2011 and then began a steady decline that sees them worth just under 5 pounds on Tuesday. ALB
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