http://www.asiasentinel.com/index.php?option=com_content&task=view&id=1886&Itemid=175
Riding the Bakrie Roller Coaster
Written by Our Correspondent
Friday, 22 May 2009
Indonesia's biggest corporate group takes the investors off on another
wild ride
Erry Firmansyah, the president of Indonesia's insider-trading-riddled
stock exchange, has never been known for an aggressive approach to policing the
country's casino-style trading regime. But the last couple of weeks have been
too bizarre for even Firmansyah, apparently.
On Thursday, after stalling for months on a request by minority
shareholders for a probe into suspect purchases by Bakrie group units allegedly
in less than arms length transactions, Firmansyah warned investors that stocks
of Bakrie Group companies, controlled by the family of Aburizal Bakrie, the
Coordinating Minister for Social Welfare could pose a high investment risk for
retail traders after the group's seven traded stocks tripled in price on
average since the first of the year. At times in recent days, Bakrie companies
have accounted for more than half of the total trading volume on the market.
The exchange temporarily suspended trading in PT Energi Mega Persada,
Bakrie's oil-drilling unit, after the stocks made a cumulative gain of 184
percent since April 24 alone, and warned investors of "unusual market activity
in shares of PT Bakrieland Development."
Despite mediocre results for most of the units, the shares, which
underwent sharp falls yesterday, have been led upwards by Energi Mega Persada,
which has risen fivefold despite recording a first-quarter loss, while PT Bumi
Resources, the flagship coal mining operation, has more than doubled in price.
Bakrie & Brothers rose by only 82 percent, the most modest rise among the
group's shares.
It is difficult to describe the sway the Bakrie companies have over
Indonesia's equities market. Bumi Resources is Indonesia's biggest coal
exporter and the biggest listed company on the Indonesia Stock Exchange. The
group has wide-ranging interests in palm oil plantations, oil, property,
telecommunications and media. Bakrieland Development is the largest listed
property company on the exchange. In all, they account for 40 percent of the
market capitalization.
"Bakrie stocks are not for the faint-hearted," Mirza Adityaswara, chief
economist for PT Bank Mandiri, told the Jakarta Globe this week. "They are only
good for daily trading, while for longer-term investment, investors should pick
firms with better fundamentals."
Despite their lackluster fundamentals, Bank Mandiri's Mirza said, all
seven Bakrie stocks have been among the top 10 most actively traded over the
past two weeks, dominating the market. Together, the seven accounted around
half of the market's daily transactions, led by Bumi, whose trades towered
above the rest of the market, averaging more than Rp 1 trillion (US$97.5
million) in daily trades over the last two weeks.
The runup in Bakrie shares is particularly astonishing in the wake of
what happened less than eight months ago, when wild falls in Bakrie company
share prices closed the Indonesia market, raising questions among the cynical
whether unknown pressures are responsible for their skyrocketing value. For
months, Bakrie has been in a continuing struggle to rescue his distressed
empire, Indonesia's biggest corporate entity, after its share price collapsed
in October during the global financial crisis, causing creditors whose loans
were covered by Bakrie stocks as collateral to demand payment. For months, the
group sought buyers for its assets to pay the debt.
The roller-coaster rise in Bakrie stocks over the last few weeks has
resulted in increasing the group's market capitalization several times over and
probably has rescued his empire, at least for now.
Three of the group's listed firms, Energi Bakrie Sumatra, and the holding
company Bakrie & Brothers, posted net losses in the first quarter, although the
other four did post net profits during the same period.
The return of investor confidence, which picked up in mid-April after
last October's market meltdown is largely responsible for the dramatic gains in
Bakrie-related companies, analysts say.
Or maybe not. The interesting thing is what happens from here on out. And
as with most things in Indonesia, politics are involved. Susilo Bambang
Yudhoyono, Indonesia's president, has discarded his former vice president Jusuf
Kalla, in favor of a technocrat, Boediono, the respected governor of Bank
Indonesia, the country's central bank, to run with him in the July election.
Bakrie himself has said he would give up his cabinet position in the next
government.
Bakrie has been the moving force behind Kadin, the Indonesian Chamber of
Commerce and Industry. With a tiny minority of the legislative seats in the
2004 presidential election, Yudhoyono made common cause with Kadin, making
Kalla his vice president, to give him a big enough coalition with the Golkar
Party, which was previously controlled by the late strongman Suharto, to run
for the presidency.
With his Democratic Party now holding more than 20 percent of the
legislative seats, Yudhoyono, who made his name as a reformer, has decided he
could get along without the Kadin electoral support. Kalla is now running on
his own against Yudhoyono, but in recent polls has been running a distant
third, partly because he is an ethnic Buginese in a country which has never
opted for a leader who wasn't Javanese. There have been reports that Bakrie
convened a meeting of Golkar stalwarts to consider dumping Kalla as Golkar
chairman, which would probably finish his presidential candidacy outright
If Yudhoyono were to pull it off and win strongly, that would raise the
question of where Bakrie would go in a country where government support has
often been deemed crucial for success - witness the previous government-led
Bakrie rescues. For instance, one of Bakrie's companies, the gas exploration
unit PT Lapindo Brantas, caused the biggest manmade environmental disaster in
Indonesian history, according to environmentalists, when a gas well blew out
near Sidoarjo, East Java, 35 kilometers south of Indonesia's second largest
city, Surabaya.
The mud volcano that ensued has continued to spew toxic mud despite all
attempts to stop it, inundating thousands of houses, businesses and schools and
entire villages, with the only answer anybody has been able to figure out is to
channel the mud off into the ocean, wrecking the fish and shellfish-rich
coastline. No serious government attempts have ever been made to prosecute the
company or the Bakrie interests.
Whether that protection will continue after Bakrie and Kadin lose their
government influence remains to be seen, and raises questions about how long
the group's torrid share price performance will continue.
However, one of the most intriguing theories is that Bakrie has already
seen the writing on the wall and now is using the rising value of his stocks to
raise funds to support Yudhoyono's almost certain presidential victory,
guaranteeing himself a continuing place at the government table.
Having left public office, he loses his immunity from prosecution -
unless, of course, he were to be appointed to Indonesia's legislative upper
house, a largely toothless body with little lawmaking clout. It does have one
crucial function. Its members are immune from prosecution. Watch this space.
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