Tue, 19 Oct 2010

From: Reuters

By Joseph Chaney & Neil Chatterjee
China may have to settle for minority stakes and financing deals when it comes to mergers and acquisitions targets in Indonesia’s resources sector, given a reluctance of locals firms such as Bumi Resources to cede control of assets.

China’s mining and oil companies, including CNOOC and Chinalco, are scouring the world for takeover targets to secure long-term supply for the world’s fastest growing major economy.

But the likelihood of Chinese state-owned giants successfully mounting takeovers of major minerals and coal firms in Indonesia, the world’s largest exporter of thermal coal and tin, is small.

Standing in China’s way are many Indonesian companies that resist floating more than 20 percent of issued share capital, as they themselves eye growing regional demand and aim to retain control, in a country historically wary of Chinese influence.

“The listed big entities are controlled,” said Matt Pieterse, director at The Beijing Axis, a strategy, sourcing, and investment firm.

“The trick is to find the smaller companies that want to expand into the export market. There is substantial possibility for off take and equity deals.”

Chinese buyers have not completed a single resources deal of over $500 million in Indonesia this year. China has made 23 global deals above that size this year globally, worth a total of $37.83 billion, with Brazil topping the list of target destinations.

Bankers had been touting big China-Indonesia deals early this year, and in August Indonesia’s state enterprises minister said giant sovereign wealth fund China Investment Corp. could plough $25 billion into infrastructure and energy firms.

High on CIC’s radar were state firms such as coal miner Tambang Batubara Bukit Asam, electricity firm Perusahaan Listrik Negara and port operator Pelindo, but no deals have materialized.

Pelindo is among seven state firms the government aims to list next year, to take advantage of a buoyant capital market with the stock index at record highs, but even so it is only likely to float minority stakes.

And Indonesian state firms may also be buyers to compete with the Chinese.

State energy giant Pertamina - looking to make up for declining oil production in the former OPEC member - said this month it would buy a 28 percent stake in Indonesia’s main private oil and gas explorer Medco Energi.

It is now eyeing gas assets from US oil giant Chevron, which has put portions of its Indonesian Ganal-Rapak project on the block, in what could be an $800 million deal.

There’s also talk that US oil major ConocoPhillips is gearing up to divest parts of its Indonesian businesses. China has yet to surface as a bidder for either.

When it comes to China, history may be a factor - envy and anti-Communist sentiment erupted into massacres of Chinese in Indonesia in 1965.

The government and companies may also not favor the Chinese approach of pushing for control and bringing in their own workers.

Now foreign investors complain of a maze of rules and slow permit approvals, and politicians are seeking national self-sufficiency in rice, sugar and natural gas.

Bumi - controlled by Golkar chairman Aburizal Bakrie - has not rested on its laurels. It lent $300 million to Recapital Advisors for the Indonesian investment firm’s $1.3 billion purchase last year of Berau Coal, the fifth-biggest local miner.

In return it got marketing rights to Berau’s coal, cementing its market influence and to speculation it was behind the deal. China’s Huaneng Power lost out in bidding.

Recapital is now looking to sell off a 10-20 percent stake in Berau and is talking to Chinese, Indian and Japanese investors, sources said, in a deal worth up to $375 million.

“They can buy a 10-20 percent stake - they can’t get control,” said a Jakarta-based investment banker, referring to China’s efforts. He said most deals in the near term would be under $1 billion. “The big ones are gone.”