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JP Op-Ed: The Baron, the Bakries and the Shattered Dream  Tapol
 Oct 22, 2012 01:44 PDT 

From Joyo


JP Op-Ed: The Baron, the Bakries and the Shattered Dream

October 22, 2012

The Jakarta Post

Rendi A. Witular, Jakarta

At an event in Jakarta in December 2010, Nathaniel Rothschild was full
of confidence and admiration with regard to the Bakrie family, whose
business empire had once enjoyed privileges from the Soeharto regime
to help counter the domination of tycoons of Chinese descent.

Rothschild seemed at the time to have weighed the risks well in
venturing forth with the Bakries in an ambitious plan to create the
world’s biggest coal company. The jewel in the Bakries’ crown, PT
Bumi Resources, the world’s largest thermal coal exporter for power
plants, was pledged as initial underlying assets to lure international
financing.

Rothschild, a scion of the centuries-old banking dynasty that once
helped bankroll Britain’s war against Napoleonic France, was also
fully aware of the risks entailed in the venture. Banks had mostly
shied away from the family’s empire due to its over-leveraged assets
and debts, as well as tax irregularities of around US$700 million in
several PT Bumi units.

In an interview with The Jakarta Post at the time, Rothschild said
that Bumi Plc, the planned joint venture company with the Bakries,
“would be large enough to take the risk”.

“So the reason why banks have not been willing to lend is simply
because the leverage of both the country and the groups’ standpoints
have been probably at the higher end of what the credit committee of
banks, local or international, has been willing to expect,” he said.

The future fifth Baron Rothschild also pledged to help the Bakrie
Group to de-leverage over time to reduce the debt and free up capital
for more expansion by listing Bumi in London to access international
financing.

“If you have an optimistic view of thermal coal prices, as I
certainly do, this whole business will be debt-free by 2014. We’ll
be in a net cash position by 2014.”

He also heaped praise on the Bakries, particularly the three brothers
— Aburizal, Nirwan and Indra.

“If you know them [the family], or you get to actually talk to
people who have done business with them, in my experience the view of
the Bakries is universally good,” he added.

Rothschild’s daring venture with the Bakries surprised many analysts
and business people. And eventually, the skeptics won the bet in the
troubles that ensued.

The goodwill seemed to have evaporated when Rothschild in November
last year made public a letter to Bumi chief executive officer Ari
Hudaya, calling for a radical clean up in PT Bumi. He sought a
timetable for the repatriation of “funds deposited with connected
parties”.

That incident was followed by further Rothschild outbursts about a
string of other financial irregularities at PT Bumi, culminating in
his decision to resign from the Bumi board on Tuesday, vowing to fight
“from outside the tent”.

With Bumi confronted by over-leveraged financing and the decline in
international coal prices, as demand slows due to global economic
uncertainties, the timing of the feud could not have been worse. The
events caused the company’s value to plunge by 88 percent.

However, as the feud ensued, Rothschild seems to have overlooked the
Bakries’ past form in sailing through a series of crises and their
influence in the nation’s political arena.

The Bakries are a politically wired family, with its patriarch
Aburizal chairing the Golkar Party, once the political machine that
helped Soeharto cling to power for three decades but now Indonesia’s
second-largest party.

It was Aburizal and his cronies who financed Susilo Bambang
Yudhoyono’s rise to power in 2004, with Yudhoyono apparently
repaying the favor by absolving the Bakrie family from official blame
for the 2006 mudflow disaster that displaced more than 3,000 people in
Sidoarjo, East Java.

The Yudhoyono administration is also alleged to have intervened to
have the Jakarta stock exchange suspended during the height of the
global financial crisis in late 2008. The suspension provided a
lifeline to the shares of Bakrie-affiliated companies, which were
plummeting at that time.

The ousting of reform-minded finance minister Sri Mulyani from the
Cabinet in 2010 may also be linked with the family.

This may also go some way to explain the Indonesian capital market
authorities’ recent decision to remain on the fence over
Rothschild’s requests for an investigation into irregularities in PT
Bumi.

For the Bakries, the intensified feud with Rothschild, 41, may seem
petty compared to the troubles the family has already been through.
They know better than any other Indonesian businesses just what a real
crisis feels like.

The family survived the impact of the late 1997 Asian financial crisis
relatively unscathed, thanks to liquidity support from the central
bank.

On the heels of the financial meltdown in the United States in late
2008, the family was bogged down with $1.2 billion debt problem, but
managed to survive through a sophisticated settlement in which
basically the debts remain and subject to restructuring by third
parties, but without the family having to relinquish their control
over Bumi Resources.

There have also been numerous allegations of tax irregularities in the
family-linked companies, but no investigation by the authorities has
been launched thus far.

Apart from the family’s history of crisis management, Rothschild
also seems to have underestimated the ingenuity of the Bakries.

Nirwan, the third child of Achmad Bakrie, the founder of the Bakrie
Group, was already known as a “master of financial engineering”
during the 1990s, while Rothschild was probably still on a learning
curve in the financial sector.

Nirwan’s credentials in this field, according to many financial
analysts, remain unmatched until this day. He is also known as a
high-profile risk taker while running the business, prompting analysts
to dub him “the man with 1,000 ways out”.

Nirwan, 61, has been in the driving seat of the family’s business
empire since 2005 after Aburizal, his older brother, joined the
Cabinet under Yudhoyono in 2004.

It was Nirwan’s allure that attracted Rothschild to forge the Bumi
venture after JPMorgan’s executive Ian Hannam hooked them up in
2010.

In less than two months after the meeting with Nirwan, Rothschild
could not resist the temptation for a deal.

“He [Hannam] approached me in October [2010], with the great idea of
introducing me to Nirwan, and he outlined the strategy too. I thought
it made sense, and I definitely wanted to meet, and that was how we
got together. A classic example of good investment banking,” said
Rothschild in an interview with the Post in December 2010.

But with the likelihood that the feud will get messier, Rothschild has
probably learned some hard lessons from his “hasty” decision. He
might also want to rethink the definition of “a classic example of
good investment banking”.

The author is a staff writer at The Jakarta Post.

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