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Main story: Dai-ichi Life secures a foothold in promising insurance sector with Panin Life deal  

TIS analysis: The smooth nature of the deal – assuming the regulatory approval goes through – indicates that insurance is likely a safer bet for foreign investors looking to deploy capital in Indonesia.

Outlook data: TheDai-ichi Panin deal is likely to spur more inbound insurance M&A, Fitch Ratings says.

Roundup: The resources sectorwas in focus this week with yet more mismanagement by Bumi Resources leading to a downgrade of the company’s debt, which is likely to prompt yet another costly fundraising exercise by Indonesia’s biggest coal producer.

Meanwhile, one of Indonesia’s top women leaders was reappointed to a second term heading oil and gas giant PT Pertamina, in a sign of ongoing good corporate governance at the state-owned firm.

Main story: Dai-ichi Life secures a foothold in promising insurance sector with Panin Life deal (TIS)

– Dai-ichi Life Insurance Co. (JP:8750) has entered Indonesia’s insurance market, officially announcing a tie-up with PT Panin Life this week that will see the Japanese insurer take a 40% stake in one of Indonesia’s most established life insurance providers for 3.3 trillion rupiah ($337 million) pending regulatory approval.

The announcement of the deal could be the catalyst for more inbound M&A in the insurance sector – Fukoku Mutual Life Insurance (JP:0013) was also rumored to be among the candidates to buy Panin Life, and market chatter suggests that insurance giants from Japan and Europe are looking for entry points into the promising local market.

It comes almost two months after TIS reported that Dai-ichi was among the list of suitors to take a strategic investment in Panin Life. The smooth nature of the Panin Life deal is in contrast with the protracted negotiations between Singapore’s DBS Holdings Ltd (SGX:D05) to buy a stake of up to 67.4% in PT Bank Danamon (IDX:BDMN), Indonesia’s sixth-biggest bank by assets, indicating that while the banking sector may offer more attractive potential returns, the insurance industry may be a more attractive destination for foreign capital as offshore investors seek a foothold in one of the world’s quickest-growing major economies.

DBS said this week that it has extended for a second time its agreement to buy the controlling stake from Singaporean state wealth fund Temasek Holdings, however Bank Indonesia is not backing down from its demands for reciprocity for Indonesian banks from the Monetary Authority of Singapore, placing the massive deal in limbo and no doubt giving DBS some sleepless nights.

(See TIS analysis section below.)

PT Panin Financial (IDX:PNLF), as parent company of Panin Life, says it has agreed with Dai-ichi Life to conclude a contract of news shares subscription for an effective 40% stake in Panin Life for an amount of Rp3.3 trillion, according to company statements. The acquisition still requires regulatory approval.

In Panin Life, Dai-ichi has a stake in an established life insurance provider As of April 9, PT Panin Insurance (IDX:PNIN) owned around 57% of PT Panin Financial (IDX:PNFL), which in turn owns 100% of Panin Life. Panin Financial has announced that it plans to transfer ownership of Panin Life to another affiliate, PT Panin Internasional, as Panin Financial shifts its focus to consulting services, pending approval for the transfer by the Financial Services Authority (OJK). Unlisted PT Panincorp owns 29.7% of Panin Insurance, Panin Bank owns 8.1% and 28.1% is held by the public.

Panin Financial corporate secretary Dony Sianipar has said previously that any deal for Panin Life will include a distribution agreement to sell life insurance products through financial institutions controlled by the Gunawan family, including PT Bank Pan Indonesia (Bank Panin).

Controlled by Mukmin Ali Gunawan, the Panin Financial business group was founded in 1974 as Panin Life and listed in 1983. The company later transfered its life insurance business to a unit, PT Panin Anugrah Insurance, which took over the name Panin Life.

Dai-ichi Life is one of the leading life insurance companies in Japan and owns an operational network across Asia Pacific, Europe, America and Australia.

Dai-ichi Life is a publicly listed company in Japan and has more than 100 years of experience in the life insurance sector. Dai-ichi Life had more than 44,000 agents with total assets of JPY35,694,411 million (US$379 billion) as of 31 March 2013.

“This strategic partnership is a key milestone for Panin Life and opens a new chapter in its growth story; the collaborationtion with Dai-ichi Life will further strengthen our business position in Indonesia,” Simon Imanto, Vice President Director of Panin Life, said.

Dai-ichi Life will bring to the joint venture its vast experience and immense expertise, particularly in the areas of actuarial, risk management, distribution and training.

“Indonesia, as the fourth most populous nation in the world, is one of the fastest growing economies in insurance markets with total life insurance premiums amounting to less than 2% of the GDP.

Entering the Indonesian insurance market is an important part of our international growth strategy and will strengthen our presence in the emerging markets. We will implement a differentiated strategy through products, distribution and services to the customers.

By combining our strengths, we are confident that we will build a company with strong competitive edge,” Hideto Masaki, Representative Director, Deputy President, Group Management Headquarters at Dai-ichi Life added. Panin Life has total assets of IDR3.9 trillion as of 31 December 2012 with total equity and gross premium income amounted to IDR420 billion and IDR2.3 trillion respectively.

This initiative shall be a cornerstone for Panin Life’s quantum leap growth as they look forward to fortify its existence in the Indonesian life insurance industry.

Bank of America Merrill Lynch was the sole financial advisor to Panin Financial and Panin Life in this transaction.

TIS analysis: The smooth nature of the deal – assuming the regulatory approval goes through – indicates that insurance is likely a safer bet for foreign investors looking to deploy capital in Indonesia.

It was only two months between the first market rumors that Dai-ichi – and at least one other, Fukoku Mutual – were interested in Panin, and the announcement of the deal.

Regulatory approval seems likely to be relatively straightforward. Compare this with the recent events in banking, the other part of the financial sector in Indonesia that is drawing strong interest from overseas.

In the most high-profile ongoing story, DBS this week extended its agreement to buy Temasek Holdings’ majority stake in DBS for two months, with an expiry date of August 1. DBS first announced its plan to acquire a majority stake in Danamon for a total of US$7.2 billion last April.

Bank Indonesia governor Agus Martowardojo is sticking to his guns, with his tone indicating that the DBS deal will be off the table unless state-owned PT Bank Mandiri (IDX:BMRI), Bank Rakyat Indonesia (IDX:BBRI) and Bank Negara Indonesia (IDX:BBNI) are allowed to expand in Singapore, preferably without paying in S$1.5 billion capital to incorporated local units.

Bank Indonesia’s position is understandable – with regional competition expected to heat up, and investment capital from outside Southeast Asia also set to start pouring into regional banks, it makes sense that BI would be hesitant to allow the  jewels of Indonesia’s banking sector to be plundered without obtaining significant returns.

In this contest, investors will certainly be keen to see who blinks first. It’s worth noting, though, that Japan’s Sumitomo Mitsui Financial Group Inc. (SMFG) has yet to experience any major hassles in its bid for a stake in PT Bank Tabungan Pensiunan Nasional (IDX:BTPN).

The company said last month that has reached an agreement to acquire up to 40% of BTPN in a deal worth an initial IDR9.2 trillion ($946 million), possibly rising to over $1.5 billion, indicating that BI may be willing to let less-high-stakes banking deals through, seeking growth in the sector and keeping competition healthy, while still retaining a firm grip on the jewels in the crown. Meanwhile, M&As in the insurance sector look set to quietly kick on with a minimum of fuss, if the Dai-ichi deal is anything to go by.

While competition is fierce in the local industry, insurance penetration rates are low enough, and the industry sufficiently immature, that local regulatory authorities look likely to welcome reputable foreign investors that can help build out the local market.

Insurance M&A deals in Asia rose to a record $30.5 billion last year and there is another $5 billion or more worth of deals in the pipeline, Reuters reports, citing S&P Capital IQ, with foreign investors willing to overlook rich valuations for the chance to tag along with economic growth in investment darlings like Indonesia.

Insurers in Asia trade at 1.73 price-to-book, nearly double the level of European and U.S. insurers, according to Thomson Reuters data. Outlook data: More foreign and domestic insurers are likely to participate in merger and acquisition activity in Indonesia, Fitch Ratings says.

The Dai-ichi Life announcement “highlights the attractiveness of the Indonesian market,” it says.” We also think local insurers may merge to gain scale to exploit the same opportunities.” It notes that with insurance penetration at only 1.7% of GDP in 2011, Indonesia ranks well behind India and China, while the takaful Islamic insurance market is also huge, but untapped.

The easier regulatory environment, with foreigners allowed to own up to 80% of insurance providers, also paves the way for more such deals – this compares with a 26% ownership cap in India and a 49% ceiling in Thailand.

The following is the remainder of the text from a Fitch Ratings report this week:

“We expect the Indonesian insurance sector to consolidate and the number of participants to fall, thanks to domestic and cross-border M&A. Higher minimum capital requirements of IDR70bn (USD7.1m) by end-2012 and IDR100bn (USD10.2m) by end-2014 should encourage smaller and weaker insurers to exit the market or merge with others."

"We believe this shift is positive for the sector as consolidation will help solidify capital positions, providing a higher buffer for claim settlements. A foreign buyer from a more mature market, such as Dai-ichi Life, could help the development of the Indonesian insurance sector through the sharing of expertise and knowledge. It may also lead to increased competitiveness among local companies. However, cultural integration remains a key challenge for the buyers. Corporate governance and market transparency are generally limited in Indonesia compared with developed markets.”

"We believe Dai-ichi Life's investment of JPY34.3bn is likely to have a negligible impact on its credit profile because the stake is relatively small, at around 2% of its consolidated net assets. However, growth opportunities in Indonesia could boost profitability for the Japanese life insurer in the long term, especially if Panin Life can establish a successful bancassurance model with Panin Bank (a sister company in the Panin Financial group)."

"The acquisition is part of Daiichi Life's ongoing plans for revenue diversification in the Asia-Pacific region to supplement its income base. Roundup: Resources sector in focus, with two contrasting developments highlighted Bumi downgrade is no surprise; expect more last-minute financing to add to Bumi’s troubles News that PT Bumi Resources (IDX:BUMI) has had its debt rating downgraded by Moody’s Investors Service, and is on review for further downgrade, will come as little surprise to market watchers familiar with Indonesia’s biggest coal company by output. Bumi Resources is a strong asset for the business empire of tycoon Aburizal Bakrie, the chairman of the Golkar political party and a long-shot presidential candidate for next year."

"However years of mismanagement have tarnished the company’s image – and the Bakries seem to have little will to change this. A deal with Vallar Plc, Nat Rothschild’s investment vehicle which backdoor-listed Bumi in London in a $2 billion deal in 2011, alongside fellow coal miner PT Berau Coal (IDX:BRAU), fell apart amid accusations of financial mismanagement and an intractable corporate culture at the Indonesian end of Bumi Resources."

"When even a savvy, risk-hungry investment scion like Rothschild finds you too difficult to deal with, you know you’re doing something wrong"

TIS analysis: Moody’s notes that the protracted breakup saga between Bumi Plc and Bumi Resources places at risk the Indonesian arm’s ability to refinance $634 million of this debt which will be due over the next 12 months, from a consolidated debt level of $4.28 billion at end-2012, as well as reducing its overall debt ratio.

It adds that a work stoppage by a contractor at the Arutmin mine since April also contributes to the dim outlook, which prompted Moody’s to cut its ratings on the corporate family and senior secured bonds to B3 from B2, six notches below investment grade, and warn of possible further downgrades.

Again, those familiar with the company will note that Bakrie is especially savvy at procuring last-minute financing from unexpected sources, often at very high rates.

A case in point is the 2009 deal with Chinese state investment fund China Investment Corp. for $1.9 billion in debt financing paying an annual coupon of 12% and yield of 19%.

Bumi is still in the process of paying this off – while it has prepaid a $600 million tranche, and can prepay another $600 million after October 2014 and the remaining $700 million after October 2015, better corporate governance could give the company better access to more conventional financing channels and prevent it from having to sell stakes in its key producing arms to pay off the debts it accrues.

A key factor in Rothschild’s decision to seek to sell his 29.4% stake in Bumi Resources is allegations that $500 million in funds have gone missing – Bumi Resources has a long way to go to repair its reputation.

Expect the refinancing obligations to be met via another hail-mary financing arrangement that will add to Bumi Resource’s debt load and do further damange to the reputation of one of Indonesia’s biggest companies.

Agustiawan reappointed as Pertamina CEO; the first second-termer in years Karen Agustiawan, the first Indonesian female leader of PT Pertamina, has been elected by the government as the sole shareholder of the state-owned oil and gas firm to lead the energy corporation for a second tenure.

The State-Owned Enterprises Ministry’s deputy for infrastructure and strategic industry Dwijanti Tjahjaningsih says that Agustiawan has performed well enough to be reappointed to lead Indonesia’s most bankable state-owned corporation – the first Pertamina CEO in decades to do so, TIS reports.

“Yes, we have chosen Karen Agustiawan as Pertamina CEO for a second tenure,” said Dwijanti. “She has shown good performance and thus we decide to reappoint her.” Pertamina booked a record-high Rp 25.89 trillion (US$2.67 billion) in net profits last year under Karen’s tenure.

In May this year, Pertamina raised US$3.25 billion from the issue of U.S. dollar-denominated bonds to international investors as part of the company’s strategy to finance its acquisition plans.

Bio:

Three decades in oil and gas for Karen Born in 1958, Agustiawan graduated from the engineering faculty of the prestigious Bandung Institute of Technology in 1983.

Agustiawan worked at Mobil until 1998, including a stint in Dallas, Texas. Between 1998 and 2002, Agustiawan was a business development manager at Landmark Concurrent Solutions Indonesia, which provides drilling, exploration, data management and other services to the oil and gas sector.

She served as a project manager at Halliburton after it acquired landmark, before becoming a special staff member at Pertamina’s upstream division in 2006, eventually taking over the division in 2008.

Regularly ranked among the world’s most powerful women by major financial publications, Agustiawan is credited with aggressively expanding Pertamina’s business reach, including acquiring domestic and overseas oil and gas blocks, developing CBM as an alternative energy source, and setting up an LNG shipping company with state-owned electricity provider PT Perusahaan Listrik Negara.

She has set an ambitious production target for Pertamina of 2.2 billion barrels of oil per day by 2025.

A mother of three, Agustiawan is considered a pioneer in the male-dominated oil and gas industry – in her previous position before becoming CEO, she was also the first woman to head Pertamina’s upstream division – and is an outspoken champion of women in the workplace. TIS Analysis: The reappointment of Agustiawan is a net positive for Pertamina and for Indonesian women in leadership.

In contrast to the politically connected Bakrie, whose apparent recklessness has tainted the reputation of one of Indonesia’s most important private-sector companies, the technocratic, well-qualified Agustiawan looks set to continue the steady hand on the tiller that is bringing reform and credibility to Indonesia’s main energy producer.

Main story: Dai-ichi Life secures a foothold in promising insurance sector with Panin Life deal   TIS analysis: The smooth nature of the deal – assuming the regulatory approval goes through – indicates that insurance is likely a safer bet for foreign investors looking to deploy capital in Indonesia. Outlook data: TheDai-ichi Panin deal is likely to spur more inbound insurance M&A, Fitch Ratings says Roundup: The resources sectorwas in focus this week with yet more mismanagement by Bumi Resources leading to a downgrade of the company’s debt, which is likely to prompt yet another costly fundraising exercise by Indonesia’s biggest coal producer. Meanwhile, one of Indonesia’s top women leaders was reappointed to a second term heading oil and gas giant PT Pertamina, in a sign of ongoing good corporate governance at the state-owned firm. Main story: Dai-ichi Life secures a foothold in promising insurance sector with Panin Life deal (TIS) – Dai-ichi Life Insurance Co. (JP:8750) has entered Indonesia’s insurance market, officially announcing a tie-up with PT Panin Life this week that will see the Japanese insurer take a 40% stake in one of Indonesia’s most established life insurance providers for 3.3 trillion rupiah ($337 million) pending regulatory approval. The announcement of the deal could be the catalyst for more inbound M&A in the insurance sector – Fukoku Mutual Life Insurance (JP:0013) was also rumored to be among the candidates to buy Panin Life, and market chatter suggests that insurance giants from Japan and Europe are looking for entry points into the promising local market. It comes almost two months after TIS reported that Dai-ichi was among the list of suitors to take a strategic investment in Panin Life. The smooth nature of the Panin Life deal is in contrast with the protracted negotiations between Singapore’s DBS Holdings Ltd. (SGX:D05) to buy a stake of up to 67.4% in PT Bank Danamon (IDX:BDMN), Indonesia’s sixth-biggest bank by assets, indicating that while the banking sector may offer more attractive potential returns, the insurance industry may be a more attractive destination for foreign capital as offshore investors seek a foothold in one of the world’s quickest-growing major economies. DBS said this week that it has extended for a second time its agreement to buy the controlling stake from Singaporean state wealth fund Temasek Holdings, however Bank Indonesia is not backing down from its demands for reciprocity for Indonesian banks from the Monetary Authority of Singapore, placing the massive deal in limbo and no doubt giving DBS some sleepless nights. (See TIS analysis section below.) PT Panin Financial (IDX:PNLF), as parent company of Panin Life, says it has agreed with Dai-ichi Life to conclude a contract of news shares subscription for an effective 40% stake in Panin Life for an amount of Rp3.3 trillion, according to company statements. The acquisition still requires regulatory approval. In Panin Life, Dai-ichi has a stake in an established life insurance provider As of April 9, PT Panin Insurance (IDX:PNIN) owned around 57% of PT Panin Financial (IDX:PNFL), which in turn owns 100% of Panin Life. Panin Financial has announced that it plans to transfer ownership of Panin Life to another affiliate, PT Panin Internasional, as Panin Financial shifts its focus to consulting services, pending approval for the transfer by the Financial Services Authority (OJK). Unlisted PT Panincorp owns 29.7% of Panin Insurance, Panin Bank owns 8.1% and 28.1% is held by the public. Panin Financial corporate secretary Dony Sianipar has said previously that any deal for Panin Life will include a distribution agreement to sell life insurance products through financial institutions controlled by the Gunawan family, including PT Bank Pan Indonesia (Bank Panin). Controlled by Mukmin Ali Gunawan, the Panin Financial business group was founded in 1974 as Panin Life and listed in 1983. The company later transfered its life insurance business to a unit, PT Panin Anugrah Insurance, which took over the name Panin Life. Dai-ichi Life is one of the leading life insurance companies in Japan and owns an operational network across Asia Pacific, Europe, America and Australia. Dai-ichi Life is a publicly listed company in Japan and has more than 100 years of experience in the life insurance sector. Dai-ichi Life had more than 44,000 agents with total assets of JPY35,694,411 million (US$379 billion) as of 31 March 2013. “This strategic partnership is a key milestone for Panin Life and opens a new chapter in its growth story; the collaborationtion with Dai-ichi Life will further strengthen our business position in Indonesia,” Simon Imanto, Vice President Director of Panin Life, said. Dai-ichi Life will bring to the joint venture its vast experience and immense expertise, particularly in the areas of actuarial, risk management, distribution and training. “Indonesia, as the fourth most populous nation in the world, is one of the fastest growing economies in insurance markets with total life insurance premiums amounting to less than 2% of the GDP. Entering the Indonesian insurance market is an important part of our international growth strategy and will strengthen our presence in the emerging markets. We will implement a differentiated strategy through products, distribution and services to the customers. By combining our strengths, we are confident that we will build a company with strong competitive edge,” Hideto Masaki, Representative Director, Deputy President, Group Management Headquarters at Dai-ichi Life added. Panin Life has total assets of IDR3.9 trillion as of 31 December 2012 with total equity and gross premium income amounted to IDR420 billion and IDR2.3 trillion respectively. This initiative shall be a cornerstone for Panin Life’s quantum leap growth as they look forward to fortify its existence in the Indonesian life insurance industry. Bank of America Merrill Lynch was the sole financial advisor to Panin Financial and Panin Life in this transaction. TIS analysis: The smooth nature of the deal – assuming the regulatory approval goes through – indicates that insurance is likely a safer bet for foreign investors looking to deploy capital in Indonesia. It was only two months between the first market rumors that Dai-ichi – and at least one other, Fukoku Mutual – were interested in Panin, and the announcement of the deal. Regulatory approval seems likely to be relatively straightforward. Compare this with the recent events in banking, the other part of the financial sector in Indonesia that is drawing strong interest from overseas. In the most high-profile ongoing story, DBS this week extended its agreement to buy Temasek Holdings’ majority stake in DBS for two months, with an expiry date of August 1. DBS first announced its plan to acquire a majority stake in Danamon for a total of US$7.2 billion last April. Bank Indonesia governor Agus Martowardojo is sticking to his guns, with his tone indicating that the DBS deal will be off the table unless state-owned PT Bank Mandiri (IDX:BMRI), Bank Rakyat Indonesia (IDX:BBRI) and Bank Negara Indonesia (IDX:BBNI) are allowed to expand in Singapore, preferably without paying in S$1.5 billion capital to incorporated local units. Bank Indonesia’s position is understandable – with regional competition expected to heat up, and investment capital from outside Southeast Asia also set to start pouring into regional banks, it makes sense that BI would be hesitant to allow the  jewels of Indonesia’s banking sector to be plundered without obtaining significant returns. In this contest, investors will certainly be keen to see who blinks first. It’s worth noting, though, that Japan’s Sumitomo Mitsui Financial Group Inc. (SMFG) has yet to experience any major hassles in its bid for a stake in PT Bank Tabungan Pensiunan Nasional (IDX:BTPN). The company said last month that has reached an agreement to acquire up to 40% of BTPN in a deal worth an initial IDR9.2 trillion ($946 million), possibly rising to over $1.5 billion, indicating that BI may be willing to let less-high-stakes banking deals through, seeking growth in the sector and keeping competition healthy, while still retaining a firm grip on the jewels in the crown. Meanwhile, M&As in the insurance sector look set to quietly kick on with a minimum of fuss, if the Dai-ichi deal is anything to go by. While competition is fierce in the local industry, insurance penetration rates are low enough, and the industry sufficiently immature, that local regulatory authorities look likely to welcome reputable foreign investors that can help build out the local market. Insurance M&A deals in Asia rose to a record $30.5 billion last year and there is another $5 billion or more worth of deals in the pipeline, Reuters reports, citing S&P Capital IQ, with foreign investors willing to overlook rich valuations for the chance to tag along with economic growth in investment darlings like Indonesia. Insurers in Asia trade at 1.73 price-to-book, nearly double the level of European and U.S. insurers, according to Thomson Reuters data. Outlook data: More foreign and domestic insurers are likely to participate in merger and acquisition activity in Indonesia, Fitch Ratings says. The Dai-ichi Life announcement “highlights the attractiveness of the Indonesian market,” it says.” We also think local insurers may merge to gain scale to exploit the same opportunities.” It notes that with insurance penetration at only 1.7% of GDP in 2011, Indonesia ranks well behind India and China, while the takaful Islamic insurance market is also huge, but untapped. The easier regulatory environment, with foreigners allowed to own up to 80% of insurance providers, also paves the way for more such deals – this compares with a 26% ownership cap in India and a 49% ceiling in Thailand. The following is the remainder of the text from a Fitch Ratings report this week: “We expect the Indonesian insurance sector to consolidate and the number of participants to fall, thanks to domestic and cross-border M&A. Higher minimum capital requirements of IDR70bn (USD7.1m) by end-2012 and IDR100bn (USD10.2m) by end-2014 should encourage smaller and weaker insurers to exit the market or merge with others. We believe this shift is positive for the sector as consolidation will help solidify capital positions, providing a higher buffer for claim settlements. A foreign buyer from a more mature market, such as Dai-ichi Life, could help the development of the Indonesian insurance sector through the sharing of expertise and knowledge. It may also lead to increased competitiveness among local companies. However, cultural integration remains a key challenge for the buyers. Corporate governance and market transparency are generally limited in Indonesia compared with developed markets.” We believe Dai-ichi Life's investment of JPY34.3bn is likely to have a negligible impact on its credit profile because the stake is relatively small, at around 2% of its consolidated net assets. However, growth opportunities in Indonesia could boost profitability for the Japanese life insurer in the long term, especially if Panin Life can establish a successful bancassurance model with Panin Bank (a sister company in the Panin Financial group). The acquisition is part of Daiichi Life's ongoing plans for revenue diversification in the Asia-Pacific region to supplement its income base. Roundup: Resources sector in focus, with two contrasting developments highlighted Bumi downgrade is no surprise; expect more last-minute financing to add to Bumi’s troubles News that PT Bumi Resources (IDX:BUMI) has had its debt rating downgraded by Moody’s Investors Service, and is on review for further downgrade, will come as little surprise to market watchers familiar with Indonesia’s biggest coal company by output. Bumi Resources is a strong asset for the business empire of tycoon Aburizal Bakrie, the chairman of the Golkar political party and a long-shot presidential candidate for next year. However years of mismanagement have tarnished the company’s image – and the Bakries seem to have little will to change this. A deal with Vallar Plc, Nat Rothschild’s investment vehicle which backdoor-listed Bumi in London in a $2 billion deal in 2011, alongside fellow coal miner PT Berau Coal (IDX:BRAU), fell apart amid accusations of financial mismanagement and an intractable corporate culture at the Indonesian end of Bumi Resources. When even a savvy, risk-hungry investment scion like Rothschild finds you too difficult to deal with, you know you’re doing something wrong. TIS analysis: Moody’s notes that the protracted breakup saga between Bumi Plc and Bumi Resources places at risk the Indonesian arm’s ability to refinance $634 million of this debt which will be due over the next 12 months, from a consolidated debt level of $4.28 billion at end-2012, as well as reducing its overall debt ratio. It adds that a work stoppage by a contractor at the Arutmin mine since April also contributes to the dim outlook, which prompted Moody’s to cut its ratings on the corporate family and senior secured bonds to B3 from B2, six notches below investment grade, and warn of possible further downgrades. Again, those familiar with the company will note that Bakrie is especially savvy at procuring last-minute financing from unexpected sources, often at very high rates. A case in point is the 2009 deal with Chinese state investment fund China Investment Corp. for $1.9 billion in debt financing paying an annual coupon of 12% and yield of 19%. Bumi is still in the process of paying this off – while it has prepaid a $600 million tranche, and can prepay another $600 million after October 2014 and the remaining $700 million after October 2015, better corporate governance could give the company better access to more conventional financing channels and prevent it from having to sell stakes in its key producing arms to pay off the debts it accrues. A key factor in Rothschild’s decision to seek to sell his 29.4% stake in Bumi Resources is allegations that $500 million in funds have gone missing – Bumi Resources has a long way to go to repair its reputation. Expect the refinancing obligations to be met via another hail-mary financing arrangement that will add to Bumi Resource’s debt load and do further damange to the reputation of one of Indonesia’s biggest companies. Agustiawan reappointed as Pertamina CEO; the first second-termer in years Karen Agustiawan, the first Indonesian female leader of PT Pertamina, has been elected by the government as the sole shareholder of the state-owned oil and gas firm to lead the energy corporation for a second tenure. The State-Owned Enterprises Ministry’s deputy for infrastructure and strategic industry Dwijanti Tjahjaningsih says that Agustiawan has performed well enough to be reappointed to lead Indonesia’s most bankable state-owned corporation – the first Pertamina CEO in decades to do so, TIS reports. “Yes, we have chosen Karen Agustiawan as Pertamina CEO for a second tenure,” said Dwijanti. “She has shown good performance and thus we decide to reappoint her.” Pertamina booked a record-high Rp 25.89 trillion (US$2.67 billion) in net profits last year under Karen’s tenure. In May this year, Pertamina raised US$3.25 billion from the issue of U.S. dollar-denominated bonds to international investors as part of the company’s strategy to finance its acquisition plans. Bio: Three decades in oil and gas for Karen Born in 1958, Agustiawan graduated from the engineering faculty of the prestigious Bandung Institute of Technology in 1983, Agustiawan worked at Mobil until 1998, including a stint in Dallas, Texas. Between 1998 and 2002, Agustiawan was a business development manager at Landmark Concurrent Solutions Indonesia, which provides drilling, exploration, data management and other services to the oil and gas sector. She served as a project manager at Halliburton after it acquired landmark, before becoming a special staff member at Pertamina’s upstream division in 2006, eventually taking over the division in 2008. Regularly ranked among the world’s most powerful women by major financial publications, Agustiawan is credited with aggressively expanding Pertamina’s business reach, including acquiring domestic and overseas oil and gas blocks, developing CBM as an alternative energy source, and setting up an LNG shipping company with state-owned electricity provider PT Perusahaan Listrik Negara. She has set an ambitious production target for Pertamina of 2.2 billion barrels of oil per day by 2025. A mother of three, Agustiawan is considered a pioneer in the male-dominated oil and gas industry – in her previous position before becoming CEO, she was also the first woman to head Pertamina’s upstream division – and is an outspoken champion of women in the workplace. TIS Analysis: The reappointment of Agustiawan is a net positive for Pertamina and for Indonesian women in leadership. In contrast to the politically connected Bakrie, whose apparent recklessness has tainted the reputation of one of Indonesia’s most important private-sector companies, the technocratic, well-qualified Agustiawan looks set to continue the steady hand on the tiller that is bringing reform and credibility to Indonesia’s main energy producer.

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