JAKARTA (TheInsiderStories) – The establishment of the first holding company ever in Indonesia has come closer to reality. Since the Ministry of State-Owned Enterprises announced its plan to create a mining holding organ last year, where the government would appoint PT Indonesia Asahan Aluminium (Inalum) as the leading holding body, to lead fellow mining companies including PT Bukit Asam (Persero) Tbk (PTBA), PT Timah (Persero) Tbk (TINS), as well as PT Aneka Tambang (Persero) Tbk (ANTM), the establishment of the holding company will apparently come to pass in upcoming weeks.
One of the objectives of the establishment of a holding company is to enhance its fund-raising capability and increase downstream industry potential. It is also in accordance with the government intention to purchase up to 51 percent of the shares of PT Freeport Indonesia through a SOEs. To gather a big picture of government preparation for the mining holding company launch, TheInsiderStories has interviewed Fajar Harry Sampurno, Deputy for Mining, Strategic Industry and Media Department.
Here is the transcript of our talk:
Q: When will the government issue a government decree (PP) as a legal basis for setting up a mining holding company?
A: Draft Government Decree (RPP) has been signed by the State Secretary (Setneg) and has been submitted to the Finance Minister for his signature. We hope that within the next 2 weeks it can be submitted to the President. Previously it was harmonized with the Minister of Energy and Mining Resources, as well as the Minister of State Owned Enterprises. In line with that process, we also put forth government decree number 72 that was previously challenged (judicial review) by the National Court, but it is currently enacted. I think the political process has taken so many time.
Q: How is the structure arranged for the forthcoming mining holding company?
A: As you know, PT Inalum will be the parent company for PT Antam, PTBA, PT Timah as well as PTFI. Bear in mind that the government already owns 10 percent of their shares. We chose PT Inalum as parent company because government already holds 100 percent of its shares. Despite the full-ownership status of the government, it will not interfere with investors in subsidiary companies. Instead of being an operating company, PT Inalum will act as a strategic company that pursues and increases the capacity of the subsidiary company. At present we have not yet decided whether it will be an investment holding, but we are currently the strategic-operating holding organ.
Q: It has been a year since the government first announced its holding company plan for SOE’s, and the mining sector will become a success story when it launches its mining holding company. Can you share with us the strategy to ensure a smooth transition?
A: We launched the holding idea actually in 2006, but at that time it proved unsuccessful. At the present, the condition of the mining sector improved somewhat; the Board of Directors looks more solid. So we learned from the experience of PT Semen Indonesia and PT Pupuk Indonesia; we took good aspects from them and improved a little. Also, we carried out a socialization program starting last June (2016): we visited labor communities in many regions, including Halmahera, Riau, Kalimantan as well as North Sumatra, to minimize movement. The Board of Directors as well as Commissioners cross-moved also, helping us strengthen mining SOE. We replaced the PT Antam CEO with PT Timah, PT Timah with PTBA, PTBA with PT Antam. And they welcomed the transition. Although we have different commodities including gold, silver, tin and coal, we are in the same industry clusters, so we have the vision to enable each other to grow together.
Q: Strategy to develop downstream industry after holding company has been created? Regarding developing downstream industry – it is costly, right? You need at least US$1 billion investment for each.
A: The Mining holding company aims to remove double investment, as well as strengthening its financial position to increase downstream industry activities. Actually we already operate downstream industry. Last June we started to establish a slab smelter in PT Inalum, and they will double their production capacity by next year. PT Antam also started to establish their smelter in Pomala and Halmahera; meanwhile, PT Antam, together with PT Inalum, also established a smelter, in Menpawah, PT Pusri and PTBA also established a mine mouth coal smelter for electricity and a gasification project. Development of downstream industry has been carried out separately by each company, in the past, with mining holding company, we want to enlarge joint cooperation between the companies and enforce more focused development. For example, PT Timah will not be doing the coal business again later, after this mining holding company comes into being. For new smelter development, the parent company will also be hands-on, and we will be discussing for which subsidiary company.
Q: How about the inefficient mining field development?
A: We currently identified 35 mining fields, and studied them thoroughly. We will identify which of them is readier to develop and that will be handled by a related company. For example silver, gold, nickel and bauxite will be handled by PT Antam, while tin and coal will be handled by PT Timah and PTBA, respectively. We also want to increase added value for local/ domestic market. Currently PT Inalum has already supplied alloy for PT Wijaya Karya Manufacture Construction, as well as supplying private aluminium alloy wheels. If domestic cannot absorb 100 percent of production, we can then export it.
Q: We heard that the government already prepared a valuation for PTFI share purchase. Can you tell us about that?
A: Basically, we usually use instrument such as equity, loans, corporate bonds or medium term notes to buy or acquire another company’s shares. In the case of PTFI, our valuation is in line with the valuation of the Minister of Energy and Mining Resources. We already sent due diligence to PTFI last week, and we hope in the next three weeks they can evaluate this due diligence. Then we can start the negotiation process, about the price and purchase mechanism. Funding is no longer an issue, because when they settled the due diligence, in which it will insert their debt affecting valuation, the smelter establishment can proceed. One that potentially can be disputed is reserves, proven reserves (reserves that will be mined by PTFI). This is still subject to negotiation. But we do not count the entire reserves as they belong to our country.
Q: So where does the funding (to buy PTFI Shares) come from?
Basically, the mining holding company will switch its shares between PT Inalum as parent, and the remaining company. As about illustration, PT Inalum will issue new shares, considered enough to buy all the government’s shares in PT Antam, PTBA, PTFI as well as PT Timah. For example, the government owns 65 percent of total PTBA shares, where the shares of PTBA are equal to two times the shares of PT Inalum, so Inalum will issue 130 percent of new shares. Same case with PT Antam etc. In the end, we will have abundant shares in the parent company, PT Inalum, as a collection of shares of PT Antam etc. PT Inalum will have bigger assets and can leverage more to buy PTFI shares through a banking loan for example, or equity, or global bond issuance as well as other market instruments.
Writing by Yosi Winosa, Email: yosi.winosa@theinsiderstories