Debt for Indonesia's Bakrie Group is business as usual

Sat Nov 12, 2011 7:20pm EST
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By Janeman Latul

JAKARTA (Reuters) - The Bakrie Group, one of Indonesia's biggest conglomerates, has once again emerged from a debt crisis by selling off some of its assets, giving away half its stake in coal venture Bumi Plc BUMIP.L to fellow miner Borneo Lumbung Energi BORN.JK.

The group, founded in 1942 by Sumatran businessman Achmad Bakrie to trade local commodities such as cocoa and coffee, is known for acquisitions funded through debt that are linked to shares in its firms -- a strategy that backfires when global financial crises hit equity and debt markets.

This month's deal to help refinance $1.35 billion of debt to avoid a default follows a similar scenario in 1998, when like many local firms it suffered a $1.2 billion default during the Asian financial crisis.

After the collapse of the group's Bank Nusa Nasional, and after years of negotiations with the government and lenders, in 2001, it gave lenders equity in its firms including the majority of its stake in an oil palm firm, Bakrie Sumatera Plantations (UNSP.JK: Quote).

Only months afterwards, the group made its first acquisition in coal mining with the purchase of an 80 percent stake worth $140 million in PT Arutmin Indonesia, owned by BHP Billiton (BHP.AX: Quote). The assets were put into its new coal firm, PT Bumi Resources (BUMI.JK: Quote).

In 2003, the Bakrie Group made another major acquisition when it bought 100 percent of Indonesia's biggest and most prized coal mining asset, PT Kaltim Prima Coal, for a cheap $500 million from oil giant BP Plc (BP.L: Quote) and global miner Rio Tinto (RIO.AX: Quote), who had to divest because of Indonesian government rules.

The deal, which made the group a global player in coal, was financed with just $25 million in cash. The rest came in the form of a $400 million loan from its long-time banker Credit Suisse CSGN.VX and another $75 million from commodity trader Glencore (GLEN.L: Quote) in exchange for coal marketing rights.

By 2004, the group bought back Bakrie Sumatera.   Continued...