Indonesia sends mixed messages

Could Antam''s efforts to buy Freeport be thwarted at the gate?

In Indonesia, where politics is always near and dear to business deals, twists are to be expected. Last week, Indonesian state-owned mining company PT Antam Tbk appointed HSBC as its financial advisor for the potential acquisition from the government of a minority stake in PT Freeport Indonesia, which owns and operates the Grasberg gold and copper mine in Papua.

But oddly, at the same time, Aburizal Bakrie, coordinating minister for the economy, claimed to reporters that the government's stake in Freeport Indonesia is not for sale.

Jakarta-based Antam is considering acquiring the government's 9.36% stake in Freeport Indonesia, which some analysts say is valued at $700 million. While Bakrie's comments have raised some eyebrows, Antam officials say they have a letter from the Ministry of State-owned Enterprises which requests Antam to carry out a due diligence of the possible acquisition by Antam of the 9.36% stake in PT Freeport Indonesia held by the government.

Of course, carrying out due diligence and actually being able to buy the stake are two different issues. Nonetheless, the mining company selected HSBC for the job from five short-listed candidates, which had included CLSA, Citigroup, BNP Paribas and Macquarie.

Freeport Indonesia, which owns and operates large copper and gold mines in Papua, the archipelago nation's easternmost province, is 81.28% directly owned by New Orleans-based Freeport McMoran Copper & Gold Corporation; 9.36% indirectly owned by Freeport McMoran through its 100% ownership of Indocopper Investama; and 9.36% owned by the government.

Antam officials say they are prioritizing the 9.36% stake of Freeport Indonesia owned by the Indonesian government rather than the 9.36% stake held by Indocopper Investama, although both options will be considered as part of the financial due diligence.

Meanwhile, some analysts speculate that Antam is actually considering purchasing the 18.76% minority stake. Moody's Investors Service says if: "Antam decided to majority-debt-fund the government's stake or the entire potential 18.72% stake, this could put negative pressure on the rating".

"On the other hand," the agency says, "if the potential acquisition is majority equity-funded, including a share swap plan for the government's stake - ie the government transfers its shares of Freeport Indonesia in exchange for newly issued Antam shares - then this event itself is unlikely to have an impact on the company's current B1 local currency corporate family rating."

As Antam carefully noted in a press release earlier this month, "Although still at a very preliminary stage and pending minority shareholder approval, there is a possibility the acquisition would be effected through a cashless transaction, wherein the government would transfer its shares of PT Freeport Indonesia to Antam in exchange for newly issued Antam shares."

But if Bakrie is correct, there will be no sale. Ironically, there is parallel speculation that Bakrie's own company, Bumi Resources would also like to buy the Antam stake. A Darakesa Sekuritas research report has noted that Bumi Resources management "mentioned that Bumi has already signed a sales purchase agreement with a gold mining company and is in active negotiation with another one."

Some local observers speculate that company is Antam.