Northstar Debt Switch Takes Heat Off Bakrie
As many suspected at the outset, the Bakries, one of the country’s most well-connected families, are likely to emerge from the global financial crisis virtually unscathed and firmly in charge of holding company PT Bakrie & Brothers, especially now that a Bakrie executive has confirmed that a planned issue of convertible bonds to Northstar Pacific Partners has been scrubbed.
“There will be no convertible bonds issued to Northstar. They [Bakrie] have actually issued secured and nonsecured notes,” Dileep Srivastava, a Bakrie & Brothers director, said on Friday, adding that the notes would replace the convertible bonds.
A convertible bond can be converted into a predetermined amount of company stock at a certain time in the future, usually at the discretion of the holder, while a secured note is a bilateral lending agreement backed by assets or other financial instruments. By contrast, unsecured notes are not backed by collateral and therefore have to offer higher rates of interest to compensate for greater risk.
The notes issue means that Bakrie will not lose control of its empire. Srivastava did not explain why Northstar agreed to the notes, nor were its executives available for comment.
On Jan. 14, Bakrie & Brothers announced that it planned to issue bonds worth Rp 4.26 trillion ($417.5 million) to Northstar, the local affiliate of US investment firm Texas Pacific Group, which could subsequently be converted into 42.6 billion shares.
However, Bakrie restructured its debt in April to Northstar up to 2012 without addressing the future of the convertible bonds.
The bonds, which were expected to be issued in May and converted into stock by the end of the year, were intended to replace the company’s debt to Northstar as a result of Northstar taking on $575 million of debt in November that Bakrie & Brothers owed to Odickson Finance.
The bonds were to have been converted into Bakrie & Brothers stock at a price of between Rp 100 and Rp 110 a share.
If the stock conversion had gone ahead, Northstar would have ended up controlling about 31 percent of Bakrie & Brothers and would have gained access to the company’s lucrative mining, property and telecommunications units.
Srivastava also said that a related plan to form a joint-venture company with Northstar to take control of 21.4 percent of PT Bumi Resources, Asia’s biggest exporter of power-station coal, was still in process. Northstar is expected to have a 30 percent stake in the joint venture company.
Bakrie & Brothers has struggled to repay $1.3 billion of overseas loans since October’s market meltdown, and had to turn for help to new investors at the start of the year, including Northstar, Ancora Capital and Brentwood Ventures. In the case of Brentwood, there were widespread allegations of affiliated dealings.
If the Bakries do emerge in one piece, it would not be the first time they survived a crisis — during the 1997-98 Asian financial crisis, Bakrie & Brothers, like many local firms, defaulted on its debts. It ultimately had to restructure $1.2 billion of debt, converting some into equity in 2001.