CEO Freeport Mcmoran Richard Adkerson with Indonesian ministers in one meeting - Photo by TheInsiderStories

JAKARTA (TheInsiderStories)Indonesia’s state-owned banks had withdrawn from plans to finance a deal by PT Indonesia Asahan Alumunium to raise its stake in PT Freeport Indonesia to 51%, as per the instruction from State Enterprises Ministry.

The Chairman of Association of State-Owned Banks and President Director of PT Bank Tabungan Negara Maryono on Wednesday (18/08) said the decision is taken after the Ministry of State-Owned Enterprises (SOEs) has instructed all state-run banks not to finance Freeport Indonesia divestment to Inalum. He added, SOEs Ministry instructed the Freeport Indonesia divestment is financed by private and foreign banks.

“So that there is money from other countries to increase our foreign exchange reserves,” he said.

BTN was not included in the list of state banks that would finance the deal.

The Corporate Banking Director of PT Bank Negara Indonesia (IDX: BBNI) Putrama Wahju Setyawan earlier said the three state-owned banks namely BBNI, PT Bank Rakyat Indonesia (IDX: BBRI), and PT Bank Mandiri (IDX: BMRI) offered US$1.5 billion in loans for Inalum, with each bank is ready to disburse  US$500 million.

President Director of Inalum Budi Gunadi Sadikin earlier said the firm has received US$5.2 billion loan offers from 11 local and foreign banks to increase the company stake in PT Freeport Indonesia to 51 per cent.

Inalum will not take all the loan offers as the company only needs US$3.85 billion to increase the share to 51 per cent from currently 9.36 per cent. In addition, Inalum already has US$1.5 billion from the internal cash.

As much as US$3.5 billion is used to buy 40 per cent of Rio Tinto‘s participation interest in Freeport Indonesia and another US$350 million to take the remaining share to achieve majority shareholder.

“We only need US$3.85 billion, we are looking for the cheapest,” he added.

Several banks that are offer loans are Standard Chartered, HSBC, CIMB Niaga, BNI, BRI, and MUFG.

Freeport McMoran and PT Indonesia Asahan Aluminium signed a head of agreement on July 12, 2018, which will see the latter take a majority stake in the former’s subsidiary, PT Freeport Indonesia.

The head of agreement contents about the Freeport divestment, smelter development, investment assurance, and taxation and extension of operations.

According to the head of agreement, the Freeport divestment deal will complete in three steps. The deal will first involve a purchase by Inalum of Rio Tinto’s 40 per cent participating interest in Grasberg which will be converted into ownership in PT Freeport Indonesia.

Next, Freeport Indonesia will conduct a rights issue, which will see Freeport McMoRan’s ownership diluted to 80.64 per cent from 90.64 per cent, not accounting the Rio Tinto deal, and Inalum’s to 5.6 per cent from 9.36 per cent. Inalum will then get a 40 per cent stake from the Rio Tinto deal, giving the company 45.6 per cent ownership in the company.

The final step is for Inalum to purchase the remaining 5.4 per cent of Freeport Indonesia, which will come from the stake currently held by PT Indocopper Investama, which is also a subsidiary of Freeport McMoRan.

The divestment mandatory is due to mining law introduced in 2009, foreign-owned miner like Freeport Indonesia must divest 51 per cent ownership to the local entity.