The Bakrie Group, one of Indonesia's biggest conglomerates, has once again emerged from a debt crisis by selling off some of its assets, giving away half its stake in coal venture Bumi Plc
The group, founded in 1942 by Sumatran businessman Achmad Bakrie to trade local commodities such as cocoa and coffee, is known for acquisitions funded through debt that are linked to shares in its firms -- a strategy that backfires when global financial crises hit equity and debt markets.
This month's deal to help refinance $1.35 billion of debt to avoid a default follows a similar scenario in 1998, when like many local firms it suffered a $1.2 billion default during the Asian financial crisis.
After the collapse of the group's Bank Nusa Nasional, and after years of negotiations with the government and lenders, in 2001, it gave lenders equity in its firms including the majority of its stake in an oil palm firm, Bakrie Sumatera Plantations
Only months afterwards, the group made its first acquisition in coal mining with the purchase of an 80 percent stake worth $140 million in PT Arutmin Indonesia, owned by BHP Billiton
In 2003, the Bakrie Group made another major acquisition when it bought 100 percent of Indonesia's biggest and most prized coal mining asset, PT Kaltim Prima Coal, for a cheap $500 million from oil giant BP Plc
The deal, which made the group a global player in coal, was financed with just $25 million in cash. The rest came in the form of a $400 million loan from its long-time banker Credit Suisse
By 2004, the group bought back Bakrie Sumatera.
It's business as usual for us. We grow our business through debt, expanding it, creating more value from it, paying our debt and then expanding again via debt...There's nothing wrong with that, said a source close to the group's thinking, referring to the latest deal.
Although Indonesia has bigger family groups such as the Sinar Mas Group and the Salim Group, the Bakries are arguably the most powerful. Family patriarch Aburizal Bakrie is the chairman of Indonesia's biggest political party Golkar, the dominant group under former autocratic leader Suharto from the 1960s to the late 1990s.
Having political clout is a significant advantage in a country such as Indonesia, where investors often face tortuous bureaucracy and government policy flip-flops.
Aburizal Bakrie, a likely candidate for presidential elections in 2014, is also a former chairman of the nation's biggest business lobby group Kadin, now headed by his friend Suryo Sulisto, president commissioner of the group's Bumi Resources.
Bumi Resources' aggressive debt-fueled acquisitions led the group to have to sell off a 30 percent stake in KPC and Arutmin, worth $1.3 billion, to India's Tata Power
The group, now led by Achmad Bakrie's second son Nirwan, found itself in yet another crisis in 2008 after Lehman Brothers collapsed, leaving it facing a margin call on $1.2 billion of short-term debt because of a slide in group firm shares.
It had to sell stakes in firms including in property, telecoms, plantations and its prized asset Bumi -- but retained control of all the assets. It had buy-back clauses in most of the complex deals with lenders and investors.
Within months of settling these debts, in December 2008 Bumi Resources again bought two coal miners and a mining contractor for over $600 million -- sparking a probe from Indonesia's capital markets regulator to check on the deal.
The group later financed the deal and paid off other debts by getting a loan in 2009 from Chinese sovereign wealth fund CIC
(Editing by Neil Chatterjee and Bill Tarrant)