http://asiasentinel.com/index.php?option=com_content&task=view&id=1472&Itemid=226
Indonesia's One-Man Wrecking Crew
Written by Our Correspondent
Friday, 10 October 2008
The Jakarta Stock Exchange remains closed after Bakrie Group companies
are suspended from trading amid allegations of irregularities
Indonesia's billionaire Chief Welfare Minister Aburizal Bakrie, whose
companies are already being held responsible for the biggest man-made
environmental disaster in Indonesian history, is now in trouble for playing a
major role in wrecking the country's stock market, which has been closed for
three days.
Six companies controlled by the powerful Bakrie Group were suspended from
trading Tuesday on the Indonesia Stock Exchange in the wake of wild gyrations
in prices that drove the group's shares down by 30 percent.
The exchange has ordered a probe into trading of the shares, with traders
and analysts openly saying the stocks had been manipulated to drive up their
price. Lenders to the Bakrie Group, wary after being burnt the first time his
empire collapsed after the 1997 Asian financial crisis, are believed to have
sought his family companies' stock as collateral. The stock comes with
stringent conditions and bankers worry that some loan covenants may be
triggered if the stock remains untradeable. The group has not disclosed what
the conditions of group loans are.
Given Bakrie's political clout and the fact that his companies have
routinely escaped scrutiny by government officials, it is questionable how far
the investigation will go. However, the disastrous blowout of a
Bakrie-controlled gas well two years ago and the environmental damage it did,
plus other problems, may have made him less than welcome in the cabinet of
President Susilo Bambang Yudhoyono, who has made reducing corruption a major
goal of his administration. The country's indefatigable Corruption Eradication
Commission has been arresting politicians right and left.
The exchange's benchmark composite index plummeted more than 21 percent
this week, the biggest three-day fall in 20 years as major foreign investors
pulled back from emerging markets, and particularly those as dicey as
Indonesia's. The Jakarta Stock Exchange was Asia's worst-performing market
before exchange president Erry Firmansyah shut it Wednesday. There was hope
that it would reopen on Friday, but Firmansyah told reporters it would remain
closed to give investors a chance to "calm down before they make decisions."
While suspicion has focused on the Bakrie-owned PT Bumi Resources Tbk,
the country's largest coal miner, it has also shone a spotlight on the Jakarta
Stock Exchange as well, which has often been likened to a gaming casino rather
than a rational market, with rampant insider trading and traders taking control
of blocks of stock in so-called "pump and dump" pyramid selling games between
them to drive up the price and draw in retail investors. A classic game is to
drive up the price of a stock by selling it between each other until enough
unsuspecting investors have been drawn in, then to sell and get out, watching
the price drop precipitately.
PT Agis Tbk, a general trading and electronics company, is a case in
point. In June of 2007, Agis was responsible for the collapse of the composite
index when 20 brokerages defaulted on trades in the company's shares worth Rp23
billion. Agis's share price had risen from Rp300 to Rp4,000 in less than six
months before plummeting.
Similarly, PT Bumi Resources was the focus of hyperactive trading during
the runup in commodity prices earlier this year.
"Among these six companies under the Bakrie Group banner, Bumi Resources
is the prima donna," Sugianto, a market trader with BNI Securities, told local
media. Sugianto noted that trading in Bumi Resources accounted for almost 30
percent of the movement in the index every month.
Although in June soaring coal prices pushed Bumi up to make it the
largest capitalized company on the exchange, its shares have plunged 75 percent
since hitting a record high of Rp8,750 on June 10.
Bayburs Alfaris, an independent market analyst, said trading in Bumi was
dominated by so-called "market makers," who are able to drive prices up or
down. "It was the market makers who drove Bumi's stock price on the exchange,"
Alfaris said, calling the stock a "beautiful play" during its heyday.
Bumi was trading at Rp950 on January 2 before it began its exponential,
almost ten-fold rise. Apart from the uptrend in commodity prices, Alfaris said,
the increase in Bumi's stock price helped it succeed in its bid to acquire
Australia-listed Herald Resources Ltd.
Herald's main asset is its 80 percent interest in the undeveloped Dairi
lead and zinc mine, which is awaiting a permit before construction work can
start. The Indonesian state-controlled nickel producer PT Aneka Tambang Tbk
owns the other 20 percent.
Both Alfaris and Sugianto said they are suspicious about the trading in
Bumi stock movements, although they caution that it appeared to have been done
within market rules.
"What we see is that the market makers maintained the movement of prices
within the range permitted by the market rules," Alfaris said. "While it
appeared to be real, in reality it was all artificial."
"Bakrie Group stocks have always been the target of speculators,"
Sugianto said. "They are very risky for serious investors." He added that
Bumi's stock would likely fall further once trading resumed. "Margin calls will
put additional pressure on Bumi's stock price," he said.
Alfaris noted persistent market reports that parent company PT Bakrie &
Brothers had defaulted on recent stock-related debts, another factor pushing
sentiment down. A briefing by Bakrie that had been planned for Thursday has
been rescheduled to next week.
The Bakrie family, one of Indonesia's richest, has continued to escape
regulatory scrutiny by government officials despite a litany of complaints.
The biggest came in May of 2006, when a gas well being drilled near Surabaya by
Lapindo Brantas, a subsidiary of the Bakrie family-owned Energi Mega Perseda,
blew out into a mud volcano that so far has drowned more than 14,000 homes, 33
schools, 65 mosques, a major toll road and an orphanage and continues to
produce more than 20 Olympic swimming pools of stinking mud every day. Lapindo
so far has agreed to pay out Rp4 trillion rupiah in compensation to villagers
who have lost their homes.
Asia Sentinel reported on September 22 that mud and gas have continued
erupting ever since, defying all efforts to stop it and inundating a vast area
of Surabaya. Hundreds have been sent to hospitals with breathing difficulties.
Scores of factories have heen closed, at least 90 hectares of paddy fields were
ruined and fish farms have been destroyed.
Nonetheless, Indonesia's Environment Ministry in September gave the
company a green citation for complying with environmental standards. The award
prompted embarrassment from officials and was soundly denounced by
environmentalists.
Despite Lapindo's claim of faultlessness, it is paying Rp4 trillion
(US$437 million) in compensation to villagers who lost their homes to the
mudflow. Most people seem to have received 20 percent of their payment but they
are still waiting on the rest
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