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Freeport hits legal hurdle carrying out IPO
PT Freeport Indonesiaâs plan to carry out an initial public offering (IPO) to fulfill its mandatory divestment obligations has faced another hurdle after a senior mining official said that such a responsibility had no legal basis
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T Freeport Indonesia's plan to carry out an initial public offering (IPO) to fulfill its mandatory divestment obligations has faced another hurdle after a senior mining official said that such a responsibility had no legal basis.
'What we have now is a regulation stating that the company has to make an offer to the government. An IPO cannot be carried out because it has no legal basis. Therefore, the divestment process has to be performed based on the existing regulations,' said Bambang Gatot Ariyono, the Energy and Mineral Resources Ministry's director general for mineral and coal.
The statement was made amid allegations that a prominent legislator was caught on tape asking for a share allocation from the subsidiary of the US mining giant Freeport McMoRan Inc.
Energy and Mineral Resources Minister Sudirman Said reported House Speaker Setya Novanto to the House ethics council this week, accusing him of using the names of President Joko 'Jokowi' Widodo and Jusuf Kalla without their knowledge to demand 20 percent of the Freeport shares as part of the aforementioned divestment program.
Under the regulations, the subsidiary company is required to divest up to 30 percent of its shares to Indonesian shareholders. The share-purchase priority is given to the central government, provincial government and regency or municipal administrations.
As the government already owns 9.36 percent of the company's shares, Freeport is only required to offer the remaining 20.64 percent under the mandatory divestment.
Funding has been an issue for the central government and regional administrations in absorbing the shares, prompting the government to consider proposing that state-owned enterprises (SOEs), including PT Aneka Tambang and PT Inalum absorb the share.
The question now is whether the divestment will be performed based on a government regulation released last year or through an IPO. The first option is already on the table, but financially complex, while the second is expected to have more transparency but lack a legal basis.
A special staff member at the Energy and Mineral Resources Ministry, Nizar Suhendra, said an IPO remained an option.
'The Energy and Mineral Resources Minister considers that an IPO will offer more established supervisory infrastructure. However, it surely needs a legal framework and the government has to discuss the matter with all stakeholders. The government will make a decision in the very near future,' he said.
According to Bambang, a warning letter has been sent to Freeport Indonesia instructing it to make its offer to the government in accordance with the implementation of the 2014 law. 'They seem to still be calculating the various possibilities. They will deliver the offer very shortly and we will assess the fair value before sending it to the Finance Ministry to determine the purchaser[s] of the shares,' he said.
However, Freeport Indonesia has said that it is unlikely to submit an offer anytime soon.
'We are waiting for a legal framework and a clear mechanism from the government,' company spokesperson Riza Pratama said.
Freeport Indonesia, which is currently 90.64 percent owned by Freeport McMoRan, has said earlier that it preferred divestment through an IPO for transparency and accountability.
A similar divestment has been previously carried out by Freeport Indonesia. Under its 1991 contract of work, the US company was required to release 51 percent of its shares. In accordance with the 1991 contract, the company released 9.36 percent to the government and another 9.36 percent to a local firm, PT Indocopper Investama, which was controlled by the politically connected Bakrie family. The company never took any action regarding the remaining 32.28 percent of shares. However, Freeport bought a 51 percent share of Indocopper a year later and the remaining 49 percent in 1997. Under a new regulation, Freeport is required only to divest 30 percent.
Last year's memorandum of understanding between the mineral and coal directorate general and Freeport Indonesia regarding the amendment of the contract of work also stipulated that if the government was not interested in the divestment, then within three years the company could offer the shares to other Indonesian nationals, including listing them on the Indonesia Stock Exchange (IDX).
Despite the contract of work and the MoU, Bambang said that an IPO mechanism would still need a legal framework.
