Indonesian business tycoon and political heavyweight Aburizal Bakrie admires rats. He urges his executives to emulate the vermin. He blogs about how his father taught him to follow the sneaky, secret ways of the rat, and attributes much of his political and business success to rat “tactics”.
I wonder if Nathaniel Rothschild and shareholders in his investment company Vallar were aware of this when they agreed to jump into bed with Bakrie under a three-billion-dollar deal announced this month.
The tie-up between Vallar and Bakrie’s Bumi Resources, a coal producer, amounts to a reverse takeover. Vallar will be rolled over into a new entity called Bumi Plc, with Bakrie’s family business empire controlling 43 percent of the new share capital, Vallar 32.1 percent and the third party in the deal, Indonesia’s Roeslani family, taking 24.9 percent.
Bakrie’s brother, Indra, will become chairman of the London-listed Bumi Plc, and the chief executive and finance director of Bumi Resources will simply slot into the same jobs at the new company. The contract makes it crystal clear that Bumi Resources, the centrepiece of the deal, will remain under Bakrie family control.
Rothschild has said the deal is good for Vallar shareholders because it gives them a slice of a new coal “champion”, well placed on the London exchange to raise fresh capital to take advantage of the massive forecast growth in demand from India and China.
Indonesia is already the world’s biggest producer of thermal coal, and Bumi is the country’s unrivalled leader in the industry. So on that level, analysts say, the deal makes sense.
But closer examination of Bakrie’s record – and his reverence for the rat – may give Vallar stakeholders pause. The The Financial Times said as much this week, in an article asking whether Rothschild really knows who he is dealing with.
So let’s look at those comments Bakrie made about rats in a speech to members of his Golkar party in July:
We are hardworking politicians and we play with certain tactics. Golkar has to have the principles of a rat. Be like the rat who bites someone’s leg, without letting the person know that he has been bitten by us. A rat always bites with certain tactics, and technique. The rat bites a little, and carefully, and then waits. After he feels it is enough, then he goes back to biting just a bit again. The person who is bit [sic] never feels it. In politics, when we attack, we must not be careless and in a hurry, or our opponents will know and attack us back.
A lot of people were appalled by these comments, of course, so Bakrie issued a clarification on his blog a few days later:
I’ll explain what I mean by ‘playing tactically.’ To make it easier to understand, I use the analogy of a mouse. Because the animal’s survival depends in my opinion on its tactical nature. Its the analogy that my dad taught while he was still alive, to explain the importance of the tactical attitude in doing business… He said that if he slept in a bale bale (outdoor platform), by the morning his socks were already perforated, and his thumb had been bitten by rats but he hadn’t felt anything. Why is that so? Because the mouse sniffs before he bites, then bites only a little. Sniffs again, bites a little more and so on. If he just bit into it, he’d be dead immediately. I think the Golkar party should be like this too.
(He adds that although rats are universally known as symbols of corruption, that’s not the image he intended to pass on to his party.)
I wasn’t talking about the greedy nature of the rat, but its tactical nature… When attacking each other in local elections or politics, we should do it politely so the attack is not painful and doesn’t cause dissension.
So that’s fine then, right?
Maybe, if a few rather eccentric words of wisdom about rats were the only things to contemplate. But they’re not. Bakrie’s companies have been linked to a number of major scandals involving hundreds of millions of dollars in allegedly unpaid tax, suspected judicial corruption likened to a “court mafia”, and an environmental disaster that has drowned a huge swath of east Java under a lake of toxic mud.
Lots of fingers are pointing at Bakrie, but he denies everything. None of the most serious allegations has ever been proven in Indonesia’s courts.
The Financial Times notes that doing business in Indonesia carries “enormous risk”:
The country ranks 110th in Transparency International’s index of corruption perceptions, just above Ethiopia. The Asian Corporate Governance Association’s latest report says its securities laws fail to prevent either insider trading or market manipulation, while prosecutions usually fail. It adds, witheringly: “The attorney general’s office is considered to be one of the most corrupt institutions in Indonesia, while judges can almost always be had for a price.”
Mr Rothschild seems to have done this deal in a few weeks, which does not allow much time for due diligence. But he must surely be aware that three Bakrie group companies were recently fined Rp500m ($55,000) by the Indonesia Stock Exchange for filing financial statements that mis-stated their cash reserves. And that, in a separate case, a tax official is on trial for allegedly accepting $3m in bribes from subsidiaries of Bumi Resources – a claim the company denies. More prosaically, the Bakrie empire has nearly collapsed twice in the past 12 years, after the 1997/98 Asian financial crisis and again in 2008.
After both near collapses it was rescued in circumstances that still raise questions about conflicts of interest and Bakrie’s political clout, questions the man himself dismisses with unaffected insouciance.
This week a tiny crack appeared in his confident persona, related to allegations of Bumi tax cheating and rumours, swiftly denied by Golkar, of a secret meeting between Bakrie and a corrupt tax official who had bribed his way out of jail to watch a tennis match in Bali. Bakrie, the former coordinating minister for people’s welfare, threatened to file a police complaint against media outlets that had been too “stubborn” in their reporting of the alleged meeting, which he denies.
Last week Bakrie was in Singapore, where he made a speech in which he praised former Singaporean prime minister Lee Kwan Yew as a “great leader”. Lee is notorious for silencing critics with defamation lawsuits.
Bakrie also told his audience that to attract the foreign capital required to build up Indonesia’s creaking infrastructure, the “biggest issue is legal certainty and the ability of the government to implement the law”.
With the jewel in his business empire’s crown soon to be listed on the London stock exchange, Bakrie will no doubt welcome the additional scrutiny his affairs are sure to attract.
As for Vallar shareholders, they may ask themselves who will bail Bakrie out the next time his empire teeters on the edge of collapse.