Indonesia's largest coal exporter says it will sell its prize assets -- 95% of PT Kaltim Prima Coal and all of PT Arutmin Indonesia and IndoCoal Resources Ltd. -- for $3.2 billion to a group of investors who include Jakarta-based PT Renaissance Capital Asia.
Credit Suisse is advising Renaissance Capital Asia on the sale. Renaissance Capital is run by Samin Tan, a former Deloitte Touche Tohmatsu partner.
The deal marks the second-largest divestment of a local company -- behind last yearÆs record deal by the Sampoerna family when it sold its entire stake in cigarette producer PT H.M. Sampoerna to Philip Morris International for $4.6 billion. Credit Suisse, the leading player in the M&A market in Indonesia, also advised the buyer, PMI, on that deal.
Reinaissance Capital may seek a loan, for as much as $2 billion to buy the mine. There are also rumours that Japan-based Marubeni Corp. is interested in pairing up with Renaissance Capital; however this could trigger concerns over foreign ownership, which has long been a problem for both mines.
PT Danatama Makmur and JPMorgan Securities Indonesia are advising Bumi on the shareholder approval process of the transaction.
This is sweet success for Bumi, which paid $149 million for 80% of PT Arutmin from BHP Billiton in 2001; it already owned the remaining 20%. In 2003 it paid $500 million for the entire share capital of KPC from BP and Rio Tinto.
Bumi deals draw attention as the company is a part of the Bakrie Group, which is controlled by the family of Indonesia's Coordinating Minister for Welfare Aburizal Bakrie. Indeed, some analysts immediately questioned why Bumi would sell.
BumiÆs explanation, in its filings to the Jakarta Stock Exchange, is that the ôproposed sale of its coal assets is in line with its business strategy to become IndonesiaÆs best performing energy and natural resources company, as it will allow Bumi to realign its focus into energy and natural resource sectors with management believes have greater long-term potential for Bumi.ö
Indeed, Bumi is reportedly in merger talks with oil-and-gas firm PT Energi Mega Persada. The group says it is considering use the proceeds from this sale to build plants on Borneo or Sumatra that produce diesel from coal and palm oil crops û not to buy PT Energy Mega Persada. But these are early days in the negotiations with PT Energy Mega Persada, and the extra cash infusion canÆt hurt Bumi.
A good deal
ôThis is a profit motive deal,ö explains Brett Williams a Singapore-based analyst at ING. ôIt was a case of buy low and sell high.ö
Other industry watchers agree that there does not seem to be any notional or hidden deals going on here, it is just a case of ôthem probably realising they canÆt squeeze much more money out of these mines now,ö says one analyst.
That is a matter of opinion, of course, and people close to the deal say that the buyers, who include merchant bankers who formerly worked at major global houses and now are taking a private-equity approach to buying up new local businesses, see potential in the mines. Indeed, careful not to say that Bumi did not enhance value of these mines, insiders say that Renaissance Capital plans to ôcontinue to enhance valueö.
There is no question that Bumi has had a good run of things recently. BumiÆs share price has gained 49-fold since October 2002 as ChinaÆs demand for coal has outstripped supplies, pushing prices up, which has benefited miners. When BumiÆs shares were suspended on Thursday (March 16) from trading by the Jakarta Stock Exchange before the deal was announced the next day, they ended the day up 5.4% to a high of Rp980.
Back to History
Arutmin is Indonesia's fourth largest coal company while Kaltim is Indonesia's second largest.
One of the reasons Bumi bought these mines is that outstanding agreements (signed almost 20 years previously) called for the then foreign owners to eventually divest 51% of their respective companies to local Indonesian investors. There were years of tortuous negotiations (and litigation) over potential sales. So Bumi bought the mines û for what some industry watchers say was a song. But it was clear the foreign companies wanted out.
Alas, the controversies did not end. Despite the fact that Bumi was an Indonesian company, the future ownership of Kaltim came under question because Bumi purchased Kaltim through two entities - Sangatta Holdings and Kalimantan Coal - that had foreign investment status. So then the East Kutai government, where Kaltim mine is located, laid claim to the company itself under the 51% divestment rule. But it was never able to raise the money to buy the mine.
Nonetheless, questions of when Bumi would sell both mines soon started to surface and circulate. Until now.
The earliest the deal could be concluded would be June, as BumiÆs shareholders must approve the agreement and they are not due to meet until that month.
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