Bumi proves breaking up is hard to do

When Indonesia's Bakrie family separated from London-listed coal miner Asia Resource Minerals in March after more than two years of acrimony with fellow investor Nathaniel Rothschild, there was at least agreement over one issue: everyone would be better off going their own way.

Eight months later, the companies linked to the ill-fated attempt to create a London-listed, Indonesia-focused coal mining giant - formerly known as Bumi - are still struggling to overcome high debt levels and corporate governance concerns.

Asia Resource is reconsidering options to refinance a $450m bond due next year, including a potential equity issue underwritten by Mr Rothschild, after 47.6 per cent shareholder Samin Tan lost control of half of his stake in October to Raiffeisen Bank International because of his own debt problem.

The Indonesian investor and his company Borneo Lumbung borrowed a total of $1.22bn from Standard Chartered and Austria's RBI to acquire the Asia Resource stake from the Bakries in two separate deals. With the shares having collapsed as coal prices have fallen, he now controls a stake worth less than $25m in addition to having received a special dividend of more than $220m in connection with the separation deal.

Mr Tan's friends, the politically connected Bakrie family, have fared little better. Their Jakarta-listed Bumi Resources, part of which was previously owned by Asia Resource, recently defaulted on an interest payment as it wrestles with a $4bn net debt pile that dwarfs its $320m market capitalisation.

Other companies in their group have been struggling, with Bakrie Telecom facing multiple creditor lawsuits in Jakarta and New York after defaulting and Bakrieland having completed a debt restructuring last year.

The Bakries and Mr Rothschild wanted to create a coal mining powerhouse by putting Indonesian assets into a premium London listed cash shell. When those plans unravelled and a separation deal was hammered out, the Bakries bought back a 29 per cent stake in Bumi Resources for $501m, while Mr Tan acquired the Bakries' remaining 23.8 per cent stake in Asia Resource for $224m.

Vishal Kulkarni, an analyst at rating agency Standard & Poor's in Singapore, says Bumi Resources remains in "dire straits" financially while Asia Resource, whose only asset is an 84.7 per cent stake in Indonesian coal miner Berau, is "in turmoil as well" - facing a falling coal price, a delayed fundraising and a loss of investor confidence because of the ownership uncertainty.

Dileep Srivastava, a director of Bumi Resources, says the unwinding removed "an element of uncertainty" and helped Bumi Resources to close a complicated debt-for-equity swap with China Investment Corporation, a sovereign wealth fund. The deal should reduce its borrowings by more than $1.3bn.

"Unfortunately, it also coincided with a fall in sector sentiment and coal prices," he adds.

Chris Fong, an executive at the Bakrie group, says that the family is not panicking and that its various investee companies are in restructuring talks with banks and creditors rather than considering fire sales.

"They've lived through the high times and they will get through the low times," he says. "The assets are world class and the value will return. The banks will want to get a better deal by staying in for longer."

Mr Tan also needs the support of his bankers. In March, his company Borneo Lumbung restructured the $1bn loan that was provided by Standard Chartered to acquire 23.8 per cent stake of Bumi plc from the Bakries in 2012.

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Borneo Lumbung declined to comment. A person close to Mr Tan says he is "trying to work through the situation with Raiffeisen".

Even if that should be resolved, people familiar with Asia Resource think it is unlikely that Mr Tan would obtain a waiver of UK stock market rules that would allow him to push his holding back up to 47.6 per cent without making an offer for the whole company.

It leaves doubts over the fate of the stake controlled by RBI - with the bank unlikely to want to be a long-term investor in an Indonesian coal company - and over Asia Resource's options for refinancing.

Mr Rothschild, who still owns almost 18 per cent, has approached Asia Resource about potentially underwriting an equity issue as part of the refinancing - an idea that helped the miner's shares jump higher on Monday.

However, Asia Resource remains some way from being able to concentrate on its day-to-day operations - one of its goals after the separation and even more urgent as the coal price continues in the doldrums.

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