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Editorial: Bakrie and WMD
Shares in the Bakrie Group of Companies listed on the Indonesian stock exchange are almost like weapons of mass destruction (WMD) for the local market
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Shares in the Bakrie Group of Companies listed on the Indonesian stock exchange are almost like weapons of mass destruction (WMD) for the local market. And therefore, they require careful treatment by the authorities, lest they explode and burn everyone else in the market. But no bailout, please.
How Bakrie shares have become WMD in the local market is down to the group's sheer size, the super-active trading of its shares, and the majority -- if not all -- of brokerage firms that are exposed to Bakrie. Also, there are so many investors speculating on Bakrie, including using margin facility from their stockbrokers.
Thus when authorities suspended trading in Bakrie shares on Oct. 7 -- one day before they suspended all trading on the bourse -- so many people were affected. When liquidity is especially scarce, like now, having stocks that cannot be traded in the market is like having useless papers -- unless you can use it as collateral to borrow, to give you a lifeline.
It is a bit heartening to know that last Friday, market authorities lifted the trading ban on three Bakrie companies: Bakrie Sumatera Plantations, Bakrieland Development and Bakrie Telecom.
They were indeed clever to cherry-pick these three Bakrie companies to resume trading, as trading speculations on these three are relatively small. The biggest market bet is actually with Bumi Resources, the world's biggest exporter of thermal coal. However, trading in Bumi and two other Bakrie companies -- oil and gas firm Energi Mega Persada and parent company Bakrie & Brothers -- remains suspended.
It is therefore no surprise when people speculate that the suspension in trading of Bakrie shares -- and also the three-day suspension of all trading in the local bourse -- will benefit Bakrie more than the public, the equity investors.
The Bakrie Group, controlled by the family of Coordinating Minister for the People's Welfare Aburizal Bakrie, will understandably use all available means to prevent its share prices from falling further, because it has reportedly offered shares as collateral for loans worth US$1.2 billion, due by April next year.
With share prices in Bakrie & Brothers and its five subsidiaries falling so much -- some by more than 40 percent before they were suspended -- many believe Bakrie must either provide more collateral, or pay back some of the debt. Otherwise, Bakrie's ownership of the subsidiaries will be diluted.
But we don't know for sure what Bakrie is facing and planning to do right now, as there are so many rumors circulating in the market, and no proper public disclosure has been provided. What we know is that Bakrie is trying to sell some of its shares in subsidiaries, including Bumi, to raise cash to repay its $1.2 billion debt.
What's interesting is that the government, through State Minister for State Enterprises Sofyan Djalil, is helping Bakrie out by asking state enterprises to buy Bakrie shares. And some of these state firms -- mining companies Tambang Batubara Bukit Asam, Aneka Tambang and Timah -- have already expressed their interest.
Although it seems that the transaction is purely business, it's a bit tricky because Aburizal is a sitting Cabinet minister, and because President Susilo Bambang Yudhoyono is a strong backer of his, despite the obvious conflicts of interests.
With the transaction looking likely to proceed, we must scrutinize this new move. We need to know whether the price is fair to both parties, whether there will be certain clauses allowing Bakrie to buy back the shares at a certain price, and most importantly, where these state firms will get the money to finance the purchase.
Despite the strong political influence, we still expect the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) -- especially after the shake-up by Finance Minister Sri Mulyani -- to closely monitor the transaction and exercise its authority to force Bakrie to make a full disclosure to the public -- something that is lacking in our market.
The capital market authorities must stand firm in this case, upholding market rules because our market has failed to impose its own discipline. It should put the interests of public investors above the interests of Bakrie. If Bakrie has to suffer and lose ownership in its subsidiaries, let it be. Equally, Bakrie must know what is at stake.
Even if Bakrie becomes a real WMD and explodes, we should never bail out these equity investors, who account for only 1 percent of our population. After all, equity investors know the risk when they invest -- they don't deserve any bailout. And neither does Bakrie.
