Mon, 12 Oct 2009
From:
By TOM WRIGHT
JAKARTA -- China's sovereign wealth fund is looking to make natural resource investments in Indonesia through a partnership with PT Bumi Resources, the nation's largest coal mining company by output, Bumi said Friday.

China Investment Corp. last month agreed to lend $1.9 billion to Bumi, mainly to help the Indonesian company refinance its existing debt, Bumi said at the time. On Friday, a Bumi spokesman said the deal also gives CIC the right of first refusal to partner with Bumi in any future acquisition by the company in Indonesia worth $75 million or more.

CIC could not be reached for comment.

The Chinese state fund has in recent months agreed to invest at least $4.25 billion in resource deals in Canada, Hong Kong and Indonesia in a move to hitch its investment strategy to rising global commodity markets. Indonesia -- the world's largest exporter of thermal coal, used to generate electricity -- is especially attractive because of its huge untapped resources and geographical proximity to China, analysts say.

CIC could take stakes in a number of projects that Bumi is looking at developing, said Dileep Srivastava, a spokesman for Bumi. These include the Maruwai coal project in the heart of Borneo island, which the company is currently "prospecting" before deciding whether to make a bid, he said. Anglo-Australian miner BHP Billiton Ltd. had been developing the site, a potentially massive project, but pulled out earlier this year after years of delays over government licenses.

Bumi's other projects include a copper and gold mine in Gorontalo province, on the northern part of Sulawesi island, which is also considered to be a potentially large project and is now at the exploration stage. The company also owns a small stake in a joint-venture company that recently bought a 10% stake in a gold and copper mine operated by Denver-based Newmont Corp. on Sumbawa island.

The tie-up with Bumi gives CIC access to Indonesia's energy sector "via an influential local partner," said Adam Worthington, a Singapore-based analyst with Macquarie Capital Securities.

PT Bakrie & Brothers, a holding company controlled by Aburizal Bakrie, a leading Indonesian politician and businessman, is the largest shareholder in Bumi. Earlier this week, Mr. Bakrie was elected the chairman of Indonesia's Golkar Party, one of Indonesia's largest political parties. President Susilo Bambang Yudhoyono, who begins his second five-year term in office on October 20, is likely to rely heavily on Golkar for support and is expected to name some party members to his next cabinet.

Shares in Bumi have fallen 17% in the past two weeks since the announcement of the loan deal with CIC on concern over the high interest an effective 19% per annum - that Bumi agreed to pay.

That rate is about twice as much as other Indonesian coal mining companies have secured for debt refinancing and reflects the large size of the loan and the market's perception of risk associated with Bumi's corporate governance, Mr. Worthington said.

In June, Indonesia's capital markets regulator scolded Bumi for paying too much for a coal asset which minority shareholders in Bumi said was linked to the Bakrie family, whose Bakrie & Brothers unit ran into debt problems when the global financial crisis erupted a year ago. Bumi denied the assets were linked but agreed to a lower price and the regulator took no further action.

Mr. Srivastava, the Bumi spokesman, said the deal with CIC could give the company access to future cheap loans from Chinese state-owned banks for new acquisitions, a benefit which may reduce its total interest costs over the medium-term.



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