Kutai Administration to buyback coal producer, why?

The rich Kutai Regency Administration in East Kalimantan province want to buyback 13% shares of PT Kaltim Prima Coal (KPC), the giant coal mining company which just divested by PT Bumi Resources Tbk to PT Borneo Lumbung Energi, at market price. Why? Is it worthy?

Kutai Regent Awang Faroek Ishak told that he would meet the management of KPC to discuss the plan. "We're ready to buyback the shares at market price," he said.

Three years ago, Kutai Regency got 18% from the divestment of 51% shares of KPC but then sold the 13% shares to Bumi Resources. Kutai is the richest among local administrations in Indonesia thanks to its huge deposit of coal.

The regency's officers and councillors are often dubbed as six-to-one officers who spend 6 days in a week in Jakarta and only one day in Kutai.
Bumi just recently divested all its ownership (95%) in KPC to Borneo Lumbung, an investment company established by Renaissance Capital (fund management company led by Samin Tan and Suryadinata Sumantri---both were DTT executives) along with another coal subsidiary PT Arutmin Indonesia at US$3.2 billion.

As of Dec 2005, Kaltim Prima Coal has total assets of US$1.2 billion with total sales of US$1.07 billion and net profit of US$59.85 million. KPC produced 28.17 million tones of coal in 2005 with total reserves of 616 million tones.
If the value of Bumi-Borneo transaction is considered a fair value, KPC could be worth US$2 billion, and 13% shares could translate to US$250 million. Wow, imagine a regency administration in Indonesia could spend so much for KPC shares. Hope that the administration had secured all people's necessary infrastructure such as schools, hospitals, roads, etc!

Why now, at the time of Borneo and Credit Suisse's plan to raise US$2.1 billion debts to finance the acquisition of KPC and Arutmin from Bumi? Is it because nobody want to put money in the transaction or the US$3.2 billion is overpriced? Even the beneficial owner behind Borneo (Nirwan Bakrie) is reportedly only put US$200 million in the US$3.2 billion transaction. So far commitment from the equity side of the acquisition is way below the target.

Looks a good investment for Kutai Administration, but with 18% in hands, the control of in others hands. The administration should be careful in spending such a huge money on something that is not clear yet!
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