15 October 2008

The Bakrie Bailout

The title of this post is perhaps misleading, then again for those in the know perhaps not so misleading. I do not claim to be in the know but I do not mind engaging in a bit of wild speculation. Bad of me I know.

The mainstream media is now reporting that The Minister of State Owned Enterprises, Sofyan Djalil (pictured), is supporting the idea of State Owned Enterprises buying into the Bakrie Group, specifically PT Bumi Resources and PT Bayan Resources. The shares are certainly not at rock bottom prices. The reality is that a number of Bakrie companies are in trouble either with debts due or debts falling due between now and April 2009.

The fact a Bakrie company defaulted on a loan led to some wild speculation that saw other Bakrie companies hit in a rapid sell-off of Bakrie stock. It is reported that the Bakrie Group accounts for somewhere between 8% - 10% of the Indonesian Stock Exchange. So, any dramatic fall in the Bakrie Group fortunes is going to have a significant impact on the market. And, so it did last week when Bakrie companies lost some 41% of their value in a matter of days.

According to Djalil, both Bumi Resources and Bayan Resources have pretty solid future prospects. Maybe this is true, however if the State Owned Enterprises are going to snap-up Bakrie shares then they are also going to be taking on some debt.

Interestingly, the word is that the Bakrie Group has approached the Stock Exchange with the idea of suspending further trade in its shares until they get on top of this mess and make some decisions. Indonesian law would allow the Stock Exchange the discretionary power to permit a suspension. Yet, if it did then there might be some serious questions on the fairness of the suspension when there are other Indonesian companies in equally perilous financial positions. My guess is that the Stock Exchange will entertain the approach but will make it known that they will not allow the suspension to happen. I would also guess that the Bakrie Group will then deny ever having contemplated such an idea. Simply, to grant such a request would be sure to be interpreted as providing a get out of jail free pass (well, at least at a much reduced cost).

The idea of selling the shares to SOEs is probably a more attractive option to the Bakrie Group than selling them off to a competitor. The belief being that if in the future the Group was to raise the capital elsewhere to pull them out of their credit hole then they would be able to re-acquire the shares back from the SOE. This might sound good in theory however it sounds a little more complex in reality. This is notwithstanding the "court of public opinion" that is likely to frown on any inkling of favourable treatment to the countries richest man (if he still is after last week's mauling is unclear).

I would expect that any transaction that sees a SOE buying into the companies of the family of the Coordinating Minister of People's Welfare should come in for some additional and special scrutiny to ensure that any accusations of favouritism can be quickly snuffed out.

8 comments:

Anonymous said...

Rob,

Wasn't this the same Bakrie chap thsat everyone was baying for blood from over the mudhole?

Didn't girls write him love letters demanding he pay up?

Didn't someone point out that he might just declare bankruptcy if he was forced to pay?

Just asking because suddenly everyone seems to want them to survive....

Polar Bear

invisible said...

unfortunately, the indonesian stock market depends heavily on bakrie group, and even though i hate the idea of favoritism, we might need it at this point.
the free fall of the stock exchange is going to weigh heavily on our forex reserves, this will cause the rupiah to weaken, maybe up to 11k.
job losses will increase and so will interest rates.
that means buying a car or a home will be much more expensive. overall retail will fall sharply.
its looking VERY grim.

ps: polar bear, aren't u dead yet?

Polar Bear said...

Ahhhhh suddenly someone realises that Indonesia needs Bakrei....

Its not looking very grim. Its looking worse than Krismon. In 98 it was just Asia that over reached itself. The West was still in a position to prop it up.

It wont happen this time. We (The West)are pumping trillions into our economies. Indonesia doesnt have the reserves.

Its not looking grim its looking catastrophic.

Im not dead. Im just fighting stupidity from a different approach.

Closing one of my blogs doesnt mean I climb in the grave. You can expect me to be around for many years to come.

Rob Baiton said...

PB...

I think they might still be baying for blood.

I do not necessarily think that everyone wants "them" to survive.

Invisible...

Yes, it does. I was just pondering whether the bail out is in the best interests of Indonesia in the long-term.

GJ said...

I say let him sink into the mud.
Why should SOE's prop the group up, if they are a viable company going forward let the market invest in them. Anyone seen Warren Buffett??

Rob Baiton said...

GJ...

Yep. If they are a viable prospect then the market will step in when the stock hits the bargain zone.

I thought that Mr. Buffet was bailing out some companies on his own.

invisible said...

rob,

the problem is, we are already well into the bargain zone, however there is no confidence, and too much panic.
also, foreign investors have their own problems due to the credit crunch, so they need to liquidate.

if you are looking to develop a portfolio for your children's future, now is the time!

Rob Baiton said...

Invisible...

Yes we are into the bargain zone. I am not sure though that we have hit rock bottom.

Yes, maybe I will look at developing the portfolio for the educational future of the Kid.

Thanks for dropping by and commenting whoever you are ;)