Bakrie Debt Deadlines Loom as President Bid Trails: Asean Credit

Apr 10, 2014 9:13 pm ET

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April 11 (Bloomberg) -- Indonesia’s Bakrie family faces a double challenge in 2014 as losses at group companies limit scope for refinancing debt while its patriarch lags behind rivals in his presidential bid.

PT Bakrie Telecom notes due 2015 trade at 12 cents on the dollar after it missed a November coupon payment. PT Bakrieland Development’s 2015 bonds are at 30 cents amid talks to delay repayments and PT Bumi Resources’ 2017 paper is at 60 cents. Eight publicly traded firms in which the family has interests had a total of $8.1 billion of debt as of Sept. 30, $2.7 billion of which was due in a year and aggregated annualized losses of $892 million, data compiled by Bloomberg show.

Businesses of the family, which last month completed a $501 million deal to sever ties with financier Nathaniel Rothschild, have been knocked by falling commodity prices and rising interest rates. Aburizal Bakrie, head of the nation’s second- largest political party, said in February the government must take a more “aggressive” fiscal stance, spend more on infrastructure and protect resource companies from competition.

“The leadership style is such that the management is less reluctant to default on their loans and bonds even across different companies,” Nitin Soni, an analyst at Fitch Ratings Ltd., said in an April 3 interview from Singapore. “The whole Bakrie group is not in a constructive condition at the moment.”

Making Progress

Aburizal, chairman of the Bakrie empire through 2004, has since dedicated himself to politics and “no longer thinks about the business of the family,” Lalu Mara Satria Wangsa, a spokesman for the family and deputy secretary general at the Golkar party, said in an April 4 interview in Jakarta.

Aburizal, who headed both the economy and welfare ministries before becoming Golkar chairman in 2009, declined to comment for this story when approached at the party’s Jakarta headquarters on April 9.

Younger brothers Nirwan and Indra have been overseeing the family’s investments in more than 200 companies, including private companies it directly oversees and others in which it lacks management control, Chris Fong, a Jakarta-based spokesman for the group, said in written comments yesterday. The group is making progress in reorganizing debts, Fong said in an April 4 interview, declining to estimate overall leverage levels.

“We are certainly riding out of the difficult times,” he said in the interview. “Each company is a separate entity, so it is difficult to look at them as a whole.”

Fong said media enquiries should be handled by him and not Nirwan, who didn’t respond to three calls to his mobile phone, a text message and written questions sent by e-mail.

Bakrie History

“They are an Indonesian family, their business interests are in Indonesia and that is not about to change,” Fong said in the written comments. “For more than 72 years the Bakrie family has been helping develop Indonesia.”

The family has bounced back before. Achmad, Aburizal’s father, started what would become the Bakrie group in 1942, trading rubber and coffee, before expanding to steel, energy and property. Aburizal struggled to repay $1.1 billion of debt when currencies plunged in the 1997 Asian financial crisis, and was forced to give away most of the family empire to creditors.

The group rebounded along with Indonesia’s economy until the companies accounted for 15 percent of the Jakarta stock exchange’s market value in June 2008, data compiled by Bloomberg show. The eight companies’ combined weighting has since shrunk to around 1 percent.

Commodity Prices

Coal and palm oil have slid 42 percent and 31 percent respectively since the end of 2010, weighing on sales for miner Bumi Resources and PT Bakrie Sumatera Plantations. Property sales for Bakrieland were hampered by 1.75 percentage points of increases in Indonesia’s benchmark interest rate last year.

The rupiah’s 21 percent drop in 2013 swelled dollar debt servicing costs. Economic growth, which topped 6 percent for the three years through 2012, slipped to 5.78 percent in 2013.

Bumi Resources’ share price has plummeted 92 percent since the end of 2010, compared with a 63 percent drop for rival PT Adaro Energy. Bakrie Sumatera fell 87 percent, as PT Astra Agro Lestari, Indonesia’s biggest palm oil company, rose 0.4 percent.

Bakrieland, Bakrie Sumatera, Bakrie Telecom and holding company PT Bakrie & Brothers are all trading at the 50 rupiah ($0.004) minimum price allowed by the exchange. Six of the eight companies posted losses in the 12 months ended September, while four have a debt-equity ratio of more than 150.

This shows the group’s managers have no interest in “promoting shareholder value,” financier Rothschild wrote in an e-mailed response to questions on April 4.

Severing Ties

The family completed a deal last month to sever ties with London-listed Asia Resource Minerals Plc, which has lost 75 percent of its value since the start of 2012 after the venture with Rothschild soured. The agreement allowed Bumi Resources to move forward with transferring stakes in its units to settle $1.3 billion of debt owed to China Investment Corp.

Of the debt maturing through September 2014, Bumi Resources has $893.3 million due, Bakrie & Brothers has $365.5 million and PT Energi Mega Persada has $241.9 million. Bakrieland is meeting bondholders to discuss options for restructuring $155 million of notes due March 2015, Director Marc Dressler said in an April 4 interview in Jakarta.

Bakrie Telecom, which posted 13 quarters of net losses as its mobile-phone market share declined, missed a November coupon payment on its $380 million of 2015 bonds, prompting Fitch’s Soni to downgrade it to C. Standard & Poor’s assigns it a D for default ranking. The firm is in restructuring talks with bondholders, Niko Margaronis, an investor relations officer, said in an April 4 e-mailed response to questions.

Cutting Debt

“The company was definitely too highly leveraged” as it faced competitive challenges, Mehul Sukkawala, a credit analyst at S&P in Singapore, said in a March 27 interview.

Some group companies are performing well. PT Visi Media Asia, which operates two television channels, gained 9.5 percent this year. Energi Mega surged 36 percent, beating the Jakarta Composite index’s 11.5 percent advance, after it sold a stake in a natural gas field for $313 million in June and refinanced some of its loans to cut interest payments.

“Energi Mega’s management has been very serious in recent years in trying to reduce their debt burden,” Wilim Hadiwijaya, an analyst at PT Ciptadana Sekuritas in Jakarta, said in an April 3 interview.

Legislative Election

The rupiah weakened 0.6 percent to 11,355 per dollar yesterday, paring this year’s gain to 7.2 percent, after no single party in legislative elections won the minimum 25 percent of votes required to nominate candidates for the July 9 presidential vote without forming a coalition. The Jakarta Composite fell 3.2 percent and the yield on benchmark 10-year government bonds climbed three basis points to 7.86 percent.

Golkar received 14.6 percent of the vote on April 9, trailing the Indonesian Democratic Party of Struggle (PDI-P), which won 19.6 percent, according to an unofficial tally by Lingkaran Survei Indonesia before final results due on May 9.

Aburizal Bakrie was the preferred president for 11 percent of 1,965 people surveyed by Roy Morgan in a poll released April 4. PDI-P’s Joko Widodo attracted 45 percent support and the Gerindra party’s Prabowo Subianto was second on 15 percent.

“If Golkar can have a coalition with the likes of PDI-P, for example, or a Golkar vice president, I think those sorts of political outcomes would undoubtedly help to support share price performances,” Harry Su, head of research at PT Bahana Securities, said in an April 10 interview in Jakarta.

Indonesia should keep more natural resources at home to help local industries, Bakrie said in February. President Susilo Bambang Yudhoyono’s government banned exports of some raw minerals in January in an attempt to boost local processing.

The Bakrie group borrowed too much during the good times, Sandra Chow, a high-yield analyst at CreditSights Inc. in Singapore, said in an April 4 interview.

“They are finding themselves in a liquidity squeeze and the bonds are at distressed levels,” she said. “If Aburizal wins, sure, it could be positive for the group. It’s very hypothetical and unlikely to happen.”

--With assistance from Widya Utami in Jakarta and David Yong in Singapore.