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November 29, 2008

Indonesia: Northstar, Bakrie sign debt buyout deal

PT Bakrie & Brothers, the flagship company of the wealthy and politically powerful Bakrie family, announced late Friday it had signed an agreement with Northstar Pacific Partners Ltd that would settle all of its lingering debts, reported the Jakarta Post.

Under the deal, Northstar, a local unit of US buyout firm Texas Pacific Group (TPG), will buy out Bakrie’s $575 million debt to Oddickson Finance, Bakrie president director Nalinkant A Rathod  said.

“We have completed a strategic partnership with Northstar. The most important aspect of the partnership is the buyout of the Oddickson Finance debt,” Nalinkant said.

He refused to confirm whether the partnership was in the form of a debt-to-equity scheme.

Bakrie’s debt to Oddickson had at one stage reached $1.08 billion, but dropped to the current amount thanks in part to “currency gains” and repurchasing agreement (repo) settlements, Nalinkant said.

Bakrie’s other debts included $72 million owing to JP Morgan Chase and Co. and $105 million to ICICI Bank Ltd.

According to Nalinkant, the remaining debt to JP Morgan was settled earlier this week, while the entire amount owing to ICICI Bank will be paid by the end of the year.

“Bakrie’s debts have all been settled. Bakrie will no longer have a problem with its debts,” he said, adding the full closure of the agreement was expected to take place within a month.

Under the deal, Northstar will form the basis to establish a joint venture company with Bakrie & Brothers. This company would in turn own the Bakrie’s collateralized assets presently in custody of Oddickson.

The deal was announced exactly 28 days after the company declared it would sell its 35 percent stake in its prized unit PT Bumi Resources, the world’s largest thermal coal exporter, to pay off its debts.

The Northstar agreement means Bakrie will not lose control of Bumi, which contributes around 88 percent of the Bakrie Group’s profit.

With sales last year of $2.26 billion and a net profit of $789 million, Bumi is considered the Bakrie’s “bread and butter”.  

“By this route, Northstar indirectly retains control of the portfolio of assets of Bakrie & Brothers and will be in a position to conclude their strategic interest in Bumi,” Nalinkant said.

Bakrie needed to sell its assets to help accelerate paying its debts after shares in Bumi and other Bakrie Group firms, pledged as collateral, slumped during the October 6 stock market rout. The debts are backed by stakes in some of its units.  

The total value of the pledged shares was estimated at $6 billion, before plunging to around $1.35 billion with creditors demanding Bakrie top up its reserves to guarantee the value, or risk being seized.

Nalinkant refused to elaborate on the issue, saying only that all the remaining debts not covered by this deal — which amount to some $200 million — would all be settled by the end of the year.

Northstar was set up in 2003 as a local arm of TPG, founded by U.S. billionaire David Bonderman. Local businessman Patrick Walujo is Northstar’s co-founder and co-managing director.

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