Bakrie Debt, M&A Deals Raise Questions

JAKARTA/SINGAPORE (Reuters) – Indonesia’s Bakrie group appears to have links to one of the funds involved in its $1.2 billion debt restructuring last month, reigniting questions about disclosure and corporate governance in one of Asia’s most corrupt economies.

The Bakrie group owns stakes in plantations, coal, telecoms and property firms and is controlled by the family of Indonesia’s chief social welfare minister Aburizal Bakrie who, until recently, was ranked as Indonesia’s richest man.

Holding company Bakrie & Brothers (BNBR.JK) came under pressure to repay hundreds of millions of dollars in short-term debt as commodity prices fell and the economic slowdown sent a chill through emerging markets in the second half of last year.

It said it would sell assets including shares in its prized asset, Bumi Resources (BUMI.JK), the country’s biggest coal miner and the kind of key resources company Indonesia considers of strategic importance.

But one party in the debt restructuring, Brentwood Ventures, appears linked to the Bakrie group, raising questions about how willing the Bakrie group is to cede control over Bumi and about corporate governance in Southeast Asia’s largest economy.

Shares in Bumi have been hit by such concerns, including a spate of controversial acquisitions in January. The stock slumped as low as 385 rupiah last week, down 95 percent from an all-time high in mid-2008.

“The recently completed and proposed group corporate actions demonstrate a cynical disregard for the interests of minority shareholders, and have unfairly tainted investors’ views of corporate governance for the market as a whole,” said James Bryson, a Jakarta-based fund manager at HB Capital.

Indonesia was ranked worst out of 11 Asian markets in the Asian Corporate Governance Association 2007 survey which cited weak disclosure of material events, antipathy to corporate governance, extremely weak enforcement record of regulators, and lack of independence of the main securities regulator.


Last month, Bakrie & Brothers said the group’s debt problems had been resolved following several deals.

In one of the deals, Bakrie executives said Brentwood Ventures had paid off a group debt of $150 million to India’s ICICI Bank (ICBK.BO) in exchange for Bumi shares.

Bakrie executives described Brentwood Ventures as a Singapore-based hedge fund. But several investors in Southeast Asia’s tight-knit hedge fund and private equity community said they had not heard of Brentwood Ventures.

Eurekahedge, a fund consultancy, said it had no record of Brentwood Ventures in its database. Lipper TASS said its database of 12,500 hedge funds did not include Brentwood Ventures.

A search of Singapore public records shows only one registered company with that name, Brentwood Ventures Pte Ltd.

Records from Singapore’s Accounting and Corporate Regulatory Authority (ACRA) show Brentwood Ventures Pte Ltd was incorporated on June 20, 2008 as an investment holding company with two directors, Lynne Tiah Lan Tim and Lim Meijing, and is owned by Fraser Group Investments, a British Virgin Islands firm.

Lim Meijing could not be reached for comment.

Tiah told Reuters she was “only a nominee director”.

When asked about links to Bakrie, she said that Brentwood Ventures was “something to do with Bakrie” saying it was “very sensitive” and that she took her instructions from Ananda Arthanelly, a Bakrie group in-house lawyer.

Arthanelly could not be reached for comment.

A few days later, Tiah told Reuters that she had been confused in the previous conversation. She said she represented a group of investors, and described Brentwood Ventures as “like a hedge fund” that was “independent of Bakrie”.

Tiah would not disclose the names of any other people involved in Brentwood Ventures.

Bakrie & Brothers’ 2008 share prospectus show that Tiah is a director of Golden Cove Pte Ltd, which is owned by a Bakrie investment firm called Long Haul.

Singapore company records show that both of Brentwood’s directors are also directors of Golden Cove.

Asked about Brentwood Ventures, Bakrie group spokesman Dileep Srivastava said: “All we know is Brentwood appears to be an investment fund based in Singapore.”

When asked whether Brentwood and Bakrie group were linked, he said “Of course not. How can that be?”


Two Indonesian private equity funds, Northstar Pacific and Ancora Capital Management (Asia), also joined in the Bakrie rescue by taking over its debt in exchange for shares in Bumi.

In November, Ancora settled a $70-100 million loan that Bakrie group owed JP Morgan in exchange for a 4.2 percent stake in Bumi, which was collateral against the loan.

Bakrie & Brothers said it has an option to buy back the stake — a further sign that the Bakries are reluctant to relinquish control over Bumi.

And in December, Bakrie & Brothers and Northstar announced a 70-30 joint venture, which would own a 21.4 percent stake in Bumi in exchange for settling some of Bakrie group’s debt.

Analysts at UBS said that deal did not appear to be a “once and for all” debt solution.

“The (Bakrie/Northstar) JV, in our opinion, suggests that management or the Bakrie family is trying to buy some more time in order to eventually retain a controlling stake in Bakrie or operating subsidiaries like Bumi,” UBS’s Johannes Salim said.

By Sara Webb and Saeed Azhar
(Additional reporting by Harry Suhartono in Jakarta and Michael Flaherty in Hong Kong; Editing by Lincoln Feast)