Indonesian miner Bumi Resources is buried under a pile of problems. It is time for the Bakrie family to start solving them
Bumi Resources is digging for cash. The Indonesian coalminer, partly owned by London-listed Bumi plc, is looking to sell a raft of non-core assets to repay a loan that fell into default last April. It intends to honour its creditors in full before January 2013, when the loan was orginally due to mature.
It's hardly the first time Bumi runs into debt problems. The company had already struggled to repay lenders as far back as during the 1997-1998 Asian crisis. And today's outstanding $437m originates from a $1.3bn loan that it had to restructure last year.
None has the root of the problems really changed. A chief cause of Bumi's weakened financial position is the falling value of its holding company shares, which are routinely pledged as collateral: concerns about corporate governance and unsustainable leverage have indeed caused shares to tumble 90% since their £14 April 2011 peak. They have also driven a wedge between the holding's founders, Indonesia’s Bakrie family and financier Nat Rothschild, creating further uncertainty around the company’s overall strategy. Bumi Resources is the flagship company of the Bakrie Group, and Mr. Rothschild has long complained about poor governance and excessive debt at the coalminer. He was ousted of its role as chairman of Bumi plc in March.
Will the expected asset fire sale draw a firm line under the company's problems? Optimists think so. The Bakrie brothers seem to have a plan: they are in talks to sell major stakes in PT Fajar and PT Pendopo, two valuable coal miners, and might consider divesting parts of Bumi Resources Minerals, a subsidiary that owns non-coal and exploration assets in Indonesia and Africa. The proceeds could reach more than $1.7bn.
But analysts underline that any sale remains dependent on pricing, and on how much the Bakries would be ready to give up. Neither should be taken for granted. Bumi Resources is also facing fresh difficulties, in the form of a probe initiated by Bumi plc into alleged financial irregularities at its subsidiary. This suggests a deepening split between investors in London-based Bumi's plc and the Bakrie family. And more turmoil seems in the cards: Samin Tan, Bumi’s new chairman and saviour of the company, is in increasingly sour mood after seeing the value of its initial $1bn investment now reduced to around $150m.
Aburizal Bakrie, the eldest of the Bakrie brothers, may have other concerns in mind. He is also chairman of Indonesia’s Golkar party, and a probable contender for the 2014 presidential elections. But before he gets a chance to compete for the high office, he may well have to demonstrate his leadership beyond his country’s borders if he is to dig Bumi Resources out of a deepening hole.