Indonesia’s capital markets regulator will await the results of Bumi Plc’s probe into claims of financial irregularities at associated companies in the Southeast Asian country before taking any action.
Bumi Plc, the London-listed 29 percent-shareholder in PT Bumi Resources, said Sept. 24 it commissioned an urgent inquiry into “potential financial and other irregularities” at its Indonesian operations, especially the Jakarta-based coal miner.
“The problem between the subsidiary and the parent company, as long as it’s not material, is not a problem and doesn’t need to be disclosed,” Ngalim Sawega, acting head of the Capital Market and Financial Institutions Supervisory Agency, or Bapepam-LK, told reporters yesterday in Jakarta. “But if it’s material then it needs to be disclosed so that the market or investors can take a position. If this is not disclosed then they will get a penalty.”
Bumi Plc, founded by Nathaniel Rothschild, has hired lawyers to look into the writedown of as much as $637 million of so-called development funds and exploration assets. It’s the latest turn in a dispute involving Rothschild, 41, and Indonesia’s Bakrie family since they agreed to a $3 billion deal in 2010 that married a centuries-old British banking dynasty with a family-owned palm oil-to-property-empire started in Sumatra in 1942.
The irregularities and subsequent investigation may hamper Bumi Resources as it seeks to refinance debt in the next year, Standard & Poor’s and Moody’s Investors Service said. Bumi Resources has debt of $3.95 billion, $300 million of which falls due in the next 12 months, according to Moody’s. S&P put that figure at $400 million.
S&P cut its long-term rating on Bumi Resources by one step to B+ from BB-, according to a statement. Moody’s changed the outlook on the company to negative from stable.
“The investigation could weaken Bumi Resources’ access to the capital markets and test its ability to refinance its short-term debt,” S&P said.
Bumi Resources shares rose as much as 9 percent today to 730 rupiah as of 12:07 p.m. in Jakarta. The shares are down about 14 percent since the end of last week.
“Investors are waiting for the outcome of the Bumi Plc probe and so it’s an opportunity to start collecting again after the sharp drop,” said Maxi Liesyaputra, an analyst at PT BNI Securities in Jakarta.
Bumi Resources received no advance notice of Bumi Plc’s probe, it said yesterday in an e-mailed statement. The company said it’s in contact with Bapepam-LK and the stock exchange to resolve the matter as quickly as possible.
“We don’t believe that there are any issues with regard to the settlement of debt or other things,” Dileep Srivastava, director at Bumi Resources, said Sept. 25 in a phone interview. “Our concentration is on getting our operations right, increasing our production to 100 million tons, trying to cut costs, to monetize our non-core assets, get down to settling debt, get down to reducing interest charges.”
The controversy over the writedown is possibly a result of differing accounting standards, Srivastava said.
Bumi Resources fell 2.9 percent to 670 rupiah yesterday in Jakarta. The shares have declined 70 percent this year, hurt by falling coal prices and concerns it may struggle to pay debt. It owes $1.3 billion to China Investment Corp.
In London, Bumi Plc fell 7.1 percent to 156 pence as of the close. The stock slumped 25 percent on Sept. 24 to a record.
The Bumi Plc board is considering a split from Bumi Resources to revive investor confidence, the Financial Times reported, without saying how it obtained the information.
The Indonesia stock exchange sent a letter to Bumi Resources on Sept. 24 asking management to explain the case and expects a response this week, Uriep Budhi Prasetyo, compliance director at the exchange, said in a text message.
The probe comes almost 11 months after Rothschild, whose ancestor helped bankroll Britain’s war against Napoleonic France, made public a letter to then-Bumi Plc CEO Hudaya calling for a “radical cleaning up” of the company and a timetable for the “repatriation of funds deposited with connected parties.”
The Nov. 8 letter cited $394 million of business development funds under non-current assets on the balance sheet of Bumi Resources as of June 20, 2011.
The probe will focus on “extensive” development funds at Bumi Resources and an asset in PT Berau Coal Energy, which were marked down to zero in the accounts of Bumi Plc as of Dec. 31, the company said. It gave no figures for the writedown.
According to its 2011 annual report published in April, Bumi Plc wrote down the value of exploration assets by $390 million to zero. It also cut the value of business development funds by $247 million.
PT Bakrie & Brothers -- controlled by Aburizal Bakrie, who is the brother of Bumi Plc Co-Chairman Indra Bakrie -- sold half of their 47.6 percent stake in Bumi Plc in November to help pay $1.35 billion in debts owed to Credit Suisse Group AG. Aburizal is the chairman of the Golkar Party of Indonesia, which was founded by former dictator Suharto.
Bumi CEO Nalin Rathod said in a May interview that the company was in talks to repay debt owed to CIC early as part of a wider plan to reduce financing costs.