HONG KONG (Reuters) – U.S. hedge fund Farallon Capital and an Indonesian coal company are in talks to join private equity firm Northstar Pacific in its deal to buy a stake in the country’s largest coal company, Bumi Resources (BUMI.JK: Quote, Profile, Research, Stock Buzz), for $1.3 billion, according to sources familiar with the matter.
Farallon and Indonesian coal company PT Tambang Batubara Bukit Asam Tbk would help Northstar put up the cash needed to buy the stake from entities controlled by Indonesia’s powerful Bakrie family, which has a $1.1 billion loan due in April.
UBS is advising Northstar, sources say. The sources did not want to be named because the deal is still being negotiated. Indonesia-based Northstar is run by former Goldman Sachs banker Patrick Walujo and has a joint venture with U.S. private equity firm TPG Capital LP [TPG.UL].
Farallon and Tambang Batubara have not yet formally signed on as consortium members, while other firms and companies are considering a role in the consortium, sources said.
Indonesian investment bank PT Renaissance Capital may consider either joining the consortium or launching a rival offer, according to sources.
Northstar has signed a conditional agreement with Bumi Resources, allowing the firm and its partners to do due diligence over the next month, sources said. As in any offer under consideration, a rival group could trump Northstar’s bid.
Fears about a possible Bakrie default on the loan prompted Indonesian authorities to suspend trading in the shares of six Bakrie companies in early October, weighing down the broader market and contributing to its closure for three days.
Farallon, Tambang Batubara, Northstar and Renaissance could not immediately be reached for comment.
PT Bakrie & Brothers Tbk (BNBR.JK: Quote, Profile, Research, Stock Buzz), the holding company controlled by the Bakries, said last month it hoped to raise $1.2 billion by selling off stakes in its broad range of assets, including a stake in Bumi Resources.
Reuters reported on Oct. 17 that Northstar and Farallon were among the firms pursuing the Bumi Resources stake.
The holding company said on Saturday it agreed to sell a 35 percent stake to Northstar, declining to say whether Northstar was the sole buyer, or leading a consortium of other firms.
Credit Suisse, which is advising the Bakrie group on the sale, declined to comment.
Northstar, and any rival group should they emerge, will have to come up with a lot of cash to pay for the stake because banks are unlikely to provide big loans.
That is where Northstar’s link to TPG helps because the U.S. firm has one of the largest buyout funds in the world. Yet the TPG link could also hurt too, as the Bakrie family and regulators are widely seen as wanting to keep shares of the highly profitable coal company in local hands.
Still, TPG and Farallon may not be local, but the firms have funds allowing them to spend hundreds of millions of dollars. Farallon has made several investments in Indonesia.
Aburizal Bakrie is Indonesia’s chief social welfare minister and an important figure in the Golkar Party, which is a key part of President Susilo Bambang Yudhoyono’s coalition. Indonesia’s Globe magazine ranked Aburizal Bakrie as the country’s richest man, with a $9.2 billion fortune. Bumi shares have tumbled 75 percent this year and are currently suspended. Its market capitalisation is $4.3 billion.
By Michael Flaherty
(Additional reporting by Saeed Azhar and Harry Suhartono; Editing by Andre Grenon)