Nathaniel Rothschild’s $3 billion deal to list Indonesia’s largest coal miner in London marries a centuries-old British banking dynasty and a family-owned commodity trader started in Sumatra in 1942.
Bakrie Group, a palm oil-to-property empire controlled by billionaire politician Aburizal Bakrie and his brothers, and Rothschild announced plans yesterday to create a miner that will almost double production to 140 million metric tons of coal by 2013, as much as South Africa last year.
“This alliance with Rothschild gives them access to European financiers, bankers, investors and markets as they want to double coal production,” said Jakarta-based Adrian Rusmana, a director at broker PT Sucorinvest Central Gani. “They just can’t rely on Indonesian banks for borrowing. They must, must seek funding from outside Indonesia.”
Bakrie is the first major Indonesian business to tap the U.K. equity market, where miners make up about 23 percent of the benchmark index’s market value. Rothschild, whose ancestor Nathan helped bankroll Britain’s war against Napoleonic France, sees coal as a bet on growth in China and India, which together burned more than half the world’s supply of the fuel last year.
Indonesia, which overtook Australia as the largest exporter of power-station coal in 2005, is closer to Asia’s largest markets than competitors, making the cost of shipping lower. Global trade will grow 4 percent next year to 651 million tons as Indian imports increase 17 percent and China’s by 9 percent, according to shipbroker Clarkson Plc.
Prices Gain
Bakrie’s PT Bumi Resources, Indonesia’s largest coal miner by volume with a market value of 54 trillion rupiah ($6 billion), produced 60 million tons of coal last year. Asian benchmark prices at Newcastle, Australia, have gained 22 percent to $113 a ton this year, according to data compiled by Bloomberg.
“We’re giving U.K. investors the opportunity to participate in this extraordinary growth story,” Rothschild said yesterday on a conference call. “Indonesia is probably the least well recognized of the major Asian economies. Today it’s remarkable to me that there is no Indonesian company listed on the main market in London.”
Bumi’s Jakarta-traded shares have underperformed versus coal prices this year, gaining 7.2 percent. They’ve also trailed the Jakarta Composite Index, up 45 percent since the start of the year. Production this year will miss an initial target of 64 million tons after heavy rain disrupted mining.
Rothschild’s Vallar
Rothschild’s investment vehicle Vallar Plc will use shares to acquire 25 percent of Bumi. It will also buy 75 percent of PT Berau Coal Energy, the fifth-biggest producer. The company will be renamed Bumi Plc and Bakrie Group will be the biggest shareholder with a 43 percent stake.
“They will control a large part of global seaborne traded coal,” said David Chang, a director at PT UOB Kay Hian Securities Indonesia. “This will give them some influence on coal supply and therefore coal prices.”
Rothschild sold shares in Vallar this year to fund investments in mining companies. Before yesterday’s deal he was the biggest shareholder with 11 percent of the company.
Rothschild said he first met Bakrie’s brother Nirwan three weeks ago in Los Angeles after an introduction by JPMorgan Cazenove Ltd. banker Ian Hannam.
Aburizal Bakrie, 64, is head of Indonesia’s Golkar party. Founded by former dictator Suharto who ran the country for 32 years, Golkar survived the 1998 transition to democracy and became a coalition partner in President Susilo Bambang Yudhoyono’s first government. Bakrie served as economics minister in 2004 and welfare minister the following year.
Bakrie graduated from Bandung Institute of Technology in 1973 and together with his brothers expanded the business set up by his father, Achmad Bakrie in 1942. Another of Aburizal’s brothers, Indra, will become chairman of Bumi Plc.
BHP Billiton
Bumi Resources purchased coal miner PT Arutmin Indonesia from BHP Billiton Ltd. in 2001. Since then, the company has borrowed to expand its mines. Long-term debt surged to $3.8 billion in June from $634 million in 2007.
Rothschild, former co-president of New York hedge-fund firm Atticus Capital LLC, raised 707.2 million pounds ($1.13 billion) in Vallar’s initial public offering in London in July and had considered deals of as much as 5 billion pounds ($8 billion).
“This acquisition should be well received by investors since this is a good price for high-quality coal assets,” Liberum Capital analysts wrote in a report. “A London-listed, large scale, pure Indonesian coal play should offer a unique commodity exposure and have strong investment appeal.”
Berau, the other coal miner in the deal, has a market value of 18.2 trillion rupiah and is 75 percent owned by PT Bukit Mutiara, a unit of PT Recapital Advisors. Mutiara will end up owning 25 percent of Bumi Plc, yesterday’s statement said.
Berau expects to produce 17.9 million tons of coal this year, rising to as much as 22 million tons by 2012, President Director Rosan Roeslani said in Auguest. The Jakarta-based company raised $152 million selling shares in an August IPO.
JPMorgan Cazenove advised Jersey, Channel Islands-based Vallar and Credit Suisse Group advised Bumi and Bakrie Group on the transaction.Source:
Reuters
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