Can you imagine how big is market capitalization of seven publicly listed firms under Bakrie Group, so called The Bakries, after new shares and warrants issue?
The shares issue will transform The Bakries into a gigantic group of companies in the market.
I am worried daily trading value of The Bakries will outstrip more than a half of Indonesia daily turnover. Now, average of daily trading value of The Bakries are 20%-40% of nation's daily transaction.
Total market capitalization of The Bakries yesterday was Rp68.91 trillion (US$7.3 billion). The biggest contributor remained PT Bumi Resources Tbk (BUMI), the darling coal producer for Bakrie family, with market capitalization Rp45.59 trillion.
PT Bakrie & Brothers Tbk (BNBR) ranked two with market capitalization of Rp8.25 trillion because it has shares capital paid in of 93.72 billion shares, the largest ever in the history of Indonesia stock market. If BNBR shares could reach Rp1,000, the company's market capitalization would be Rp93,72 trillion. How fantastic it is!
The third and fourth were PT Bakrieland Development Tbk (ELTY), property arm of The Bakries, and PT Bakrie Telecom Tbk (BTEL), CDMA-based telephone operator with consecutive market capitalizations of Rp4.08 trillion and Rp4.04 trillion.
But, PT Energi Mega Persada Tbk (ENRG), oil and gas company, PT Bakrie Sumatera Plantations Tbk (UNSP), cpo producer, and coal mining contractor PT Darma Henwa Tbk (DEWA) recently announced rights and warrants issue.
Massive rights issue
Energi Mega aims to offload additional 26.18 billion of new shares into the market worth Rp4.84 trillion, 1.71 fold of yesterday market capitalization. After issuing rights and warrants, the company's total shares out will be 45.49 billion shares or 3.15 times of its outstanding shares of 14.40 billion units.
Bakrie Plantations announced its plan to inundate market with 9.47 billion of new shares worth Rp4.97 trillion, 2.34 fold of yesterday market capitalization. The company's outstanding shares after rights issue and warrants will be 13.88 billion, 367% higher than today of 3.78 billion units.
Darma Henwa revealed rights issue program by issuing 6.24 billion of new shares worth Rp624.39 billion, enlarging its outstanding shares from 15.61 billion units to 21.85 billion units.
In total, three companies will inundate the stock market with 41.89 billion of new shares worth Rp10.42 trillion (US$1.11 billion).
For The Bakries, rights issue, warrants, and debt-linked equity are the most favourite financing scheme. Track records revealed that The Bakries mostly take the scheme. It is rare and wierd for The Bakries to use cash aquisition. Leverage buyout is the most they like.
This is why acquisitions in many cases at The Bakries mostly elevate their debt burden. When their leverage have peaked, The Bakries reduce the debt ratio by making additional new shares. But, sometimes they have to pay the loan using another loan or refinancing. BUMI did it. Take high interest loan from China Investment Corporation to refinance debt facilities arranged by Credit Suisse.
What is the impact for the stock market? The more The Bakries offload new shares, the bigger the transaction and market capitalization will be. In return, up and down of The Bakries will easily influence Indonesia stock market. It was not surprissed when Indonesia stock market performed well in Asia or even globally in 2007. Thank to The Bakries.
The problem appeared when The Bakries shares was dragging dawn all the market in October last year. Before suspending the whole market, Indonesia Stock Exchange (IDX) firstly stoped The Bakries' shares. It was to save the composite index, but The Bakrie took advantage.
How is in the future?
In my opinion, The Bakries favourite way to enlarge shares out must be closely watched by IDX and The Capital Market Supervisory Agency (Bapepam-LK). For sure, if The Bakries do it over and over, it is not good for Indonesia stock market which will be dependent on The Bakries.
Nowadays, there is no regulation which could be taken by Bapepam-LK or IDX to limit The Bakries rights issue. But, at least the regulation could ask The Bakries to review such corporate actions or provide a maximum number of new shares out. Dilutive effect is also unfair for public investors.
If IDX is too afraid to do so, it may ask help to government to make more public for state owned enterprises. I don't believe it will work. If there is no action from the stock regulators, sooner or later  The Bakries would reign in the market.
