JAKARTA (Reuters) - Indonesia’s mining-to-telecoms conglomerate Bakrie Group will negotiate with creditors to restructure part of its $8 billion in debt rather than sell major assets, people familiar with its strategy say.
They say the group, which has gone through two financial crises since the 1990s, will opt for the tested approach of restructuring debt, even though that risks frustrating increasingly impatient creditors.
Bakrie companies have missed principal or interest payments at least four times in the past two years, and creditors would prefer them to sell assets to raise funds faster.
Some creditors sued one Bakrie company in New York while a Jakarta supplier has asked an Indonesian court to supervise a debt restructuring. Other creditors of another Bakrie firm have refused a proposal to convert its debt into shares.
Companies from Japan, Malaysia and Indonesia have expressed interest in palm and rubber assets owned by PT Bakrie Sumatera Plantations Tbk but the group wants to keep them, said a source familiar with the Bakrie Group strategy, who declined to be named.
Another person close to the group said that with debt levels as high as they are, “in a way you have to come up with a plan to restructure even if it’s a long-term game.”
Judgments in foreign courts are not enforceable in Indonesia, so foreign creditors would do better to leave Bakrie to work out its debt problems rather than try to enforce claims against it, the second person said.
The Bakrie Group has long carried a heavy debt load and creditors have been tolerant, in part because of generous yields and a belief that the companies could tap rich mining resources to come up with cash.
But the coal business - pivotal for Bakrie - has been hard hit. The price of thermal coal is now about $65 a tonne, compared with a peak of nearly $195 in 2008, before Bakrie took on a lot of new debt to expand.
The Bakrie Group was founded by Achmad Bakrie in 1942 to trade commodities such as cocoa and coffee in Sumatra. Today, it is led by one of his sons. Aside from coal, Bakrie has expanded into oil and gas, plantations, property and other businesses, mainly through debt-funded acquisitions.
Ten Bakrie-linked listed companies had total debt of $8.1 billion as of June, with flagship coal miner PT Bumi Resources Tbk owing $4.3 billion alone, according to Thomson Reuters data.
When asked about the Bakrie Group’s strategy to service its debt, spokesman Christopher Fong said that companies associated with the group are independently managed and in some cases the Bakrie family does not hold a majority stake.
“They are not under one umbrella and need to be viewed as stand-alone entities,” he said in an email. Bakrie sees coal prices rising above $80 next year and it maintains strong relationships with its banks, he added.
Three bondholders have sued PT Bakrie Telecom Tbk in a New York court and Indonesia’s PT Netwave Multi Media, one of Bakrie Telecom’s local vendors, has requested a court-supervised debt restructuring process in Jakarta.
Netwave is worried that the interests of several big, foreign creditors will be prioritized over others, Sandra Nangoy, a lawyer representing Netwave, told Reuters.
“We are not asking Bakrie Telecom to sell its assets right now, but Bakrie Telecom has to give certainty and guarantee that it will pay its debt,” she said.
Bakrie Telecom said on Tuesday it has received an official notification from the Jakarta commercial court and it will “take the appropriate steps to respond...while paying attention to the interests of all our creditors and business sustainability.”
Earlier this month, Axis Bank Ltd, Credit Suisse, Deutsche Bank, UBS AG and China Development Bank declined Bumi’s proposal to exchange $275 million of its debt for new shares. Bumi shares have lost more than half their value so far this year.
“I think investors are somewhat resigned to the fact that they are dependent on the company to initiate the next stage. But yes, the level of frustration is rising but I think at this point investors have yet to organize themselves,” said a Bumi bondholder who declined to be named due to the sensitivity of the matter.
Even after completing an agreed $1.36 billion debt-to-equity swap with China Investment Corp [CIC.UL], Bumi will not have the internal capacity to fund more than $1 billion maturing over the next 18 months due to its weak liquidity and over-leveraged balance sheet, Moody’s Investors Service said in August.
Brian Grieser, senior analyst at Moody’s, said that Bumi has faced “the perfect storm of high-interest debt and a fall in coal prices.”
Some executives close to the Bakries believe that the group will be able to ride through its latest challenge.
“I do not have even the smallest doubt that they are managing this well, and will make a strong comeback,” said Samin Tan, an Indonesian coal mining magnate who bought the Bakries’ stake in Bumi Plc, now known as Asia Resource Minerals Plc. “History has proven this time and again.”
Additional reporting by Umesh Desai in HONG KONG, Lianting Tu from IFR, Patturaja Murugaboopathy and Tripti Kalro in BANGALORE, Fransiska Nangoy in JAKARTA; Editing by Emily Kaiser and Richard Borsuk