The nation's politically wired Bakrie family has opened up another chapter of controversy after the Indonesia Stock Exchange (IDX) has warned the family-run coal company against raising more debts to finance its mega-sized share buyback plan.
IDX president director Erry Firmansyah said PT Bumi Resources, the world's largest thermal coal exporter, should refrain from issuing medium term notes (MTNs) to help fund the Rp 8.25 trillion ($694 million) share buyback plan.
"Bumi is not supposed to finance its share buyback with loans, but with internal cash," said Erry on Thursday.
"We've already met and told them (Bumi management) not to issue the MTNs," he added.
The IDX has recommended the Indonesian Capital Market and Financial Institution Supervisory Agency (Bapepam) not to grant clearance for the issue.
Erry argued the MTN issue might potentially break the 2007 Law on Limited Liability Companies. However, he refused to elaborate further.
MTNs are a kind of bond which carry higher interest rates but with a shorter maturity period compared to a regular bond.
The bourse has good reason to be concerned because Bumi's parent PT Bakrie & Brothers -- the investment holding company of the Bakrie family, already has huge exposure to unsettled debts.
Bumi announced on Nov. 19 it would buy back shares in the market up to the level of 17 percent of total holdings to help Bakrie & Brothers secure its proposed deal with Northstar Pacific Partners Ltd., the local subsidiary of the U.S. buyout company Texas Pacific Group.
Bakrie & Brothers had intended to sell its 35 percent stake in Bumi to help settle its $1.2 billion debt problem. However, most of the stake has already been pledged as collateral for loans, leaving the company with a much smaller stake in its hands.
PT Bakrie and Brothers has already reached a deal with Northstar that it will buy $575 million of PT Bakrie Brothers debts in exchange for joint control of Bumi.
According to the initial Bumi buyback plan, Bumi will pay Rp 2,500 (20.7 U.S cents) per share, higher that its current share value, which has fallen by almost 90 percent from its highest level at Rp 8,750 per share in June.
The company has said it would need $824.6 million to do this, of which $224 million would be from internal cash, and the remaining $600 million would be financed by loans including from the proceeds of the issuing of the Medium Term Notes.
So far, the company has secured $75 million from Switzerland-based Credit Suisse bank to facilitate the buyback, which is expected to be completed within a three month period starting on Nov. 17 and continuing until Feb. 14, 2009.
In response to the IDX intervention, Bumi spokesman Dileep Srivastava said Bumi would observe all the regulatory and legal processes with the plan to buy back up to 17 percent of total Bumi shares and that its plans remained unchanged and as per the regulations.
Analysts are concerned that the decision by Bakrie & Brothers to use Bumi as a cashcow to resolve the company's debt problem, will be putting public shareholders in a worrying position concerning the large debt burden that Bumi will have to bear and the implications of this for its ability to sustain the paying out of dividends.
Bumi accounts for around 88 percent of Bakrie & Brothers annual earnings.
"Bakrie and Bumi are now being pressured by a huge amount of short-term debts. So, issuing MTNs would burden them further," said capital market analyst Yanuar Rizky.
"Stock market regulators have to check their financial capability prior to permitting the MTNs issue," he said.
Bumi shares climbed 5.2 percent to Rp 810 on Thursday. (hwa)
