The impact of the Dubai World fallout on emerging markets, and investors’ responses to Bumi Resources’ corporate action last week, will likely take a toll on the Indonesian bourse when trading resumes Monday.
The bourse managed to avoid the Dubai contagion as felt by other Asian markets on Friday as the Indonesian Stock Exchange (IDX) was closed in observance of the Islamic holiday of Idul Adha.
Adrian Rusmana of BNI Securities said the IDX was likely to extend Thursday’s correction as most indices in Asia were down after Dubai World’s attempt to reschedule its debt drove investors away from higher-yielding assets and commodities in the emerging markets.
Dubai World has requested a delay for all payments, including by subsidiaries, until May 30 next year. A subsidiary, Nakheel PJSC, cannot repay Islamic bonds worth US$3.52 billion due for maturity on Dec. 14.
Dubai World’s $59 billion of liabilities as of August make up the majority of Dubai’s total debt of $80 billion.
Dubai World is the Dubai government’s investment arm, ruled by Sheikh Mohammed bin Rashid al-Maktoum, the prime minister and vice president of the United Arab Emirates (UAE).
“Dubai is part of the UAE. With the UAE defaulting [on its debt], the perception of global investors on other emerging markets such as ours becomes negative,” Adrian said.
The extent of the Dubai contagion on the Indonesian bourse will be largely determined by how other markets in Asia respond on Monday.
“The world market is now worried of two things: whether there will be other defaults of major financial institutions in other countries, and whether the Dubai World creditors will be able to act quickly to restructure their debts,” said Standard Chartered economist Fauzi Ichsan.
“The Tokyo and HK stock markets open one hour earlier than ours, we’ll see how they fare. If they plunge, Indonesia will too. But our index correction will not go to more than 10 percent due to this crisis.”
Independent stock analyst Felix Sindhunata said the crisis in Dubai was just another variable that was going to worsen the pressure-laden market sentiment, particularly from the correction on commodity prices, affecting commodity producers such as Bumi, Indonesia’s biggest coal producer and partly owned by PT Bakrie & Brothers.
The pressure on commodity producers was made worse by suspicious corporate actions, he said.
“A lot of investors are worried about Bakrie’s aggressive business expansion, but I think it’s a Bakrie characteristic to engage in a lot of acquisitions,” he said. “That’s why they have a lot of debt.”
Bumi shares tumbled 8.7 percent to Rp 2,375 at market close on Thursday, while Bakrie also fell by 8 percent to Rp 92 — the sharpest drop since Aug. 19, Bloomberg reported — on speculation that the company would sell equity to fund acquisitions.
As two of Indonesia’s biggest market movers, the firms helped the composite index fall 2.8 percent.
Bumi senior vice president for investor relations Dileep Srivastava told The Jakarta Post on Saturday the company had issued convertible bonds worth $300 million Thursday with an annual coupon of 5 percent and seven years’ tenor.
He added these corporate actions were in line with the company’s strategic plans to ultimately generate more value for shareholders.
The plans, Srivastava went on, included a target to raise thermal coal production from 53 million tons in 2008 to 111 million tons by end of 2012, to acquire 100 percent of Herald Resources and to facilitate the Newmont Nusa Tenggara divestment to Indonesia.
“Value creation is at work in Bumi — we aim to get to fair value on the merits of business fundamentals soon. Hopefully this shouldn’t take long,” he said.
He stressed that in the long run, shareholders would benefit from Bumi’s aggressive actions.
“The share price at year-start was Rp 910. At present it’s running between Rp 2,000 and Rp 3,000, undervalued purely on thermal coal by around 70 percent — irrationally. Many realize this,” he said.
