Indonesia’s Resource Firms Wary of Chinese Takeovers
Joseph Chaney & Neil Chatterjee | October 18, 2010

China may have to settle for minority stakes and financing deals when it comes to mergers and acquisitions targets in Indonesia’s resources sector, given a reluctance of locals firms such as Bumi Resources to cede control of assets.

China’s mining and oil companies, including CNOOC and Chinalco, are scouring the world for takeover targets to secure long-term supply for the world’s fastest growing major economy.

But the likelihood of Chinese state-owned giants successfully mounting takeovers of major minerals and coal firms in Indonesia, the world’s largest exporter of thermal coal and tin, is small.

Standing in China’s way are many Indonesian companies that resist floating more than 20 percent of issued share capital, as they themselves eye growing regional demand and aim to retain control, in a country historically wary of Chinese influence.

“The listed big entities are controlled,” said Matt Pieterse, director at The Beijing Axis, a strategy, sourcing, and investment firm.

“The trick is to find the smaller companies that want to expand into the export market. There is substantial possibility for off take and equity deals.”

Chinese buyers have not completed a single resources deal of over $500 million in Indonesia this year. China has made 23 global deals above that size this year globally, worth a total of $37.83 billion, with Brazil topping the list of target destinations.

Bankers had been touting big China-Indonesia deals early this year, and in August Indonesia’s state enterprises minister said giant sovereign wealth fund China Investment Corp. could plough $25 billion into infrastructure and energy firms.

High on CIC’s radar were state firms such as coal miner Tambang Batubara Bukit Asam, electricity firm Perusahaan Listrik Negara and port operator Pelindo, but no deals have materialized.

Pelindo is among seven state firms the government aims to list next year, to take advantage of a buoyant capital market with the stock index at record highs, but even so it is only likely to float minority stakes.

And Indonesian state firms may also be buyers to compete with the Chinese.

State energy giant Pertamina — looking to make up for declining oil production in the former OPEC member — said this month it would buy a 28 percent stake in Indonesia’s main private oil and gas explorer Medco Energi.

It is now eyeing gas assets from US oil giant Chevron, which has put portions of its Indonesian Ganal-Rapak project on the block, in what could be an $800 million deal.

There’s also talk that US oil major ConocoPhillips is gearing up to divest parts of its Indonesian businesses. China has yet to surface as a bidder for either.

When it comes to China, history may be a factor — envy and anti-Communist sentiment erupted into massacres of Chinese in Indonesia in 1965.

The government and companies may also not favor the Chinese approach of pushing for control and bringing in their own workers.

Now foreign investors complain of a maze of rules and slow permit approvals, and politicians are seeking national self-sufficiency in rice, sugar and natural gas.

Bumi — controlled by Golkar chairman Aburizal Bakrie — has not rested on its laurels. It lent $300 million to Recapital Advisors for the Indonesian investment firm’s $1.3 billion purchase last year of Berau Coal, the fifth-biggest local miner.

In return it got marketing rights to Berau’s coal, cementing its market influence and to speculation it was behind the deal. China’s Huaneng Power lost out in bidding.

Recapital is now looking to sell off a 10-20 percent stake in Berau and is talking to Chinese, Indian and Japanese investors, sources said, in a deal worth up to $375 million.

“They can buy a 10-20 percent stake — they can’t get control,” said a Jakarta-based investment banker, referring to China’s efforts. He said most deals in the near term would be under $1 billion. “The big ones are gone.”

Reuters

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Commodities Decline Leads Indonesian Shares Lower
October 18, 2010

Jakarta. The Jakarta Composite Index declined on Monday as falling commodity prices dragged most regional markets lower.

The JCI fell 30.11 points, or 0.8 percent, to close at 3,566.92. About 5.8 billion shares worth Rp 4.4 trillion ($489.7 million) changed hands. Gainers beat decliners 154 to 70.

“It’s now at a point that investors want to wait and cut back risks after ... the regional rally has very much priced in the prospect of US easing measures,” said Warut Siwasriyanon, head of research at Finansia Syrus Securities.

The most active stock by value, Medco Energi Internasional, Indonesia’s largest listed oil company, surged 15 percent to Rp 4,225, its steepest increase since February 2009.

State-run Pertamina said on Sunday that it had signed an agreement to buy Encore International, giving Pertamina a 27.9 percent stake in Medco.

Aneka Tambang, a state-run nickel producer, fell 3 percent. Timah, Indonesia’s largest tin producer, lost 5.3 percent, making it the biggest loser on the Jakarta Mining Index on Monday.

Nickel futures fell 2 percent to $23,550 a metric ton in London while tin lost 1 percent to $26,450 a ton.

Astra Agro Lestari, the country’s largest listed plantation company, fell 1.9 percent.

Palm oil futures declined 1.1 percent to 2,897 ringgit ($935) a metric ton in Kuala Lumpur trading, on pace for the biggest drop since Oct. 4. Astra Agro plants only oil palm trees.

Fajar Surya Wisesa, a producer of container boards, boxboard and coated paper, rose 6.9 percent to Rp 3,100, the biggest gain since Sept. 30.

Fajar said nine-month net income rose 44 percent from a year earlier to Rp 256 billion.

Meanwhile, the rupiah retreated from near its highest level in three years, falling 0.2 percent to trade at 8,928 per dollar as of the stock market close on Monday, on concern that policy makers will intervene to limit exchange-rate volatility.

The currency has advanced 5.2 percent this year, after climbing 16 percent in 2009.

“BI has been supporting the dollar in the market,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore.

“At any point as the rupiah weakens slightly, people will push for it to get stronger.

The market is just going to continue to test the central bank’s resolve” in keeping the rupiah at between 8,920 and 8,925, he said.

Central banks nudge currency markets by arranging purchases or sales of foreign exchange.
http://www.thejakartaglobe.com/business/commodities-decline-leads-indonesian-shares-lower/401979

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Local shares slide, trailing regional markets
The Jakarta Post, Jakarta | Mon, 10/18/2010 1:43

Share prices on the Indonesian Stock Exchange (IDX) slid down on Monday midday following the regional markets, which were mostly trading lower Monday.

The Indonesian composite index closed the morning session at 3,585.161, or down 11.87 points from Friday's close of 3,597.031.

A total of 128 shares went down, as compared to only 65 shares that gained ground on Monday morning trading. Total transaction reached Rp 2.5 trillion.

Bhakti Securities head of research Edwin Sebayang told Tempointeraktif.com that local share prices were still considered expensive, and therefore, some investors sold their holding for profit taking.

In the region, Associated Press reported that Hong Kong's Hang Seng dropped 1 percent to 23,517.95. Banking heavyweight HSBC was down 2.2 percent - weighed down by U.S. financial stocks that have been affected by mortgage problems that could cost big banks billions.

Shares of Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. fell at least 4 percent and JPMorgan Chase & Co. fell nearly 3 percent Thursday on Wall Street.

South Korea's Kospi slid 1.1 percent to 1,880.54. Australia's S&P/ASX 200 was off 0.8 percent at 4,649.7. Markets in Singapore, Taiwan, Indonesia and Malaysia were also lower.

Japan's Nikkei 225 stock average, meanwhile, rose 0.1 percent to 9,508.88 and China's Shanghai Composite Index also rose, gaining 0.5 percent to 2,984.866. But most other indexes fell.
http://www.thejakartapost.com/news/2010/10/18/local-shares-slide-trailing-regional-markets.html

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US Market Updates

Stocks Modestly Higher After Jump In Home Builder Confidence

Stocks are showing modest upside in mid-morning trading on Monday, with traders reacting to a better than expected reading on home builder confidence and a string of upbeat earnings reports including banking giant Citigroup.

The major averages have all seen some downside in recent dealing, slipping off of their session highs. The Dow is up 45.68 points at 11,108.46, the Nasdaq is up by 2.74 points at 2,471.51 and the S&P 500 is up by 2.86 points at 1,179.05.

A short time ago, the National Association of Home Builders said that its home builder confidence index moved up to 16 in October after last month's reading of 13. The upward move also defied forecasts for the index to remain at 13. The increase came as market conditions, sales projections and consumer prospects all showed gains.

Just before the start of trading, the Federal Reserve reported that industrial production unexpectedly declined in September. The headline number showed a drop-off of 0.2 percent compared to the 0.2 percent uptick recorded in August.

The fall surprised economists who had forecast an increase of 0.2 percent, while the figure also marked the first fall in production after six months of increases.

The report also showed that capacity utilization inched down to 74.7 percent in September from 74.8 percent in August. Initial forecasts looked for the figure to remain flat at 74.8 percent.

In earnings news, Citigroup Inc. released third quarter results showing net income of $0.07 per share compared to a loss last year, while edging out estimates for $0.06 per share for the quarter. The firm was able to turn a profit following a significant reduction in provisions for credit losses.

Revenues for the quarter came in at $20.74 billion, short of revenue estimates of $21.15 billion for the quarter.

Halliburton Company reported third-quarter net income of $0.60 per share, above EPS estimates for $0.55 for the quarter. Total revenues were $4.67 billion, also beating expectations which called for $4.63 billion for the period.

Hasbro Inc. posted third-quarter net earnings of $1.09 per share, topping projections for $1.04 per share for the quarter. Net revenues rose 3 percent to $1.31 billion, also coming in above estimates which called for $1.29 billion in revenues for the quarter.

In other corporate news, oil giant BP Plc said it has agreed to sell its upstream businesses and associated interests in Venezuela and Vietnam to TNK-BP - Russia's third largest oil firm - for $1.8 billion in cash.

Northeast Utilities agreed to acquire rival NSTAR in a stock for stock merger, a total value of $9.5 billion. The merger is expected to result in a combined entity with a total value of $17.5 billion.

Cardiovascular medical devices manufacturer St. Jude Medical, Inc. announced that it has agreed to acquire AGA Medical Holdings, Inc. for $20.80 per share in a cash and stock deal valued at about $1.3 billion, including the assumption of about $225 million in outstanding debt.

Sector News

Banking stocks are seeing notable gains in mid-morning trading, helped by upbeat reaction to earnings from Citi. The KBW Bank Index is posting a gain of 1.9 percent, bouncing back from Friday's five-week closing low.

Utility, natural gas and healthcare provider stocks are also seeing gains, but are seeing much more restrained buying interest.

Meanwhile, semiconductor stocks are under pressure, driving the Philadelphia Semiconductor Index down by 1.2 percent off of the two and a half month closing high set on Friday.

Stocks Driven By Analyst Comments

Jack In The Box is higher after being upgraded at RBC Capital Markets from Sector Perform to Outperform. The broker also raised its target on the stock from $22 to $28. The stock has gained 2.1 percent and is on pace for its best closing price in five and a half months.

Trimble Navigation is also on the upside after analysts at Wedbush raised their rating on the stock from Underperform to Neutral, while boosting the price target from $25 to $34. Shares are up by 0.7 percent and were on target earlier for their highest close in two and a half years.

On the other hand, Altera is down after RBC Capital Markets dropped its rating on the stock from Outperform to Sector Perform and lowered its target from $34 to $30. The stock is posting a loss of 1.7 percent and is looking for its lowest close in three weeks.

Other Markets

Overseas, stock markets in the Asia-Pacific region ended mostly lower on Monday. Japan's benchmark Nikkei 225 Index slid by less than 0.1 percent, while Hong Kong's Hang Seng Index fell by 1.2 percent.

The major European markets are largely on the upside. The German DAX Index and the U.K.'s FTSE 100 Index are both up by 0.6 percent, while the French CAC 40 Index is up by 0.2 percent.

In the bond markets, treasuries are modestly higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.527 percent, posting a loss of 4.9 basis points.


Canadian Market Reports

TSX Poised For Mixed Open Monday

Bay Street stocks are poised for a mixed open Monday amid a host of M&A activity and varied cues from the commodities markets. Meanwhile, cues from the global equities market were discouraging, with most Asian markets ending lower.

On Friday, the S&P/TSX Composite Index eased 10.62 points or 0.08% to 12,609.07.

The price of crude oil was little changed amid recovering dollar and falling equities. Crude for November edged up $0.17 to $81.47 a barrel.

Meanwhile, the price of gold continued to level off from its recent record highs amid a firm U.S. dollar. Gold for December was down $8.70 to $1,363.30 an ounce. Last week, gold advanced to an all-time record intraday high of $1,388.10 before settling at 1,372.

According to media reports, Alberta Investment Management Co. will to take an equity investment in Potash Corp. in a bid to block a takeover by the Australian miner BHP Billiton.

In corporate news from Canada, lender RBC said it would acquire BlueBay Asset Management plc by way of a court-approved arrangement in exchange of 485 pence in cash for each share held. BlueBay is an independent credit asset manager in Europe with assets under management of $40 billion as at September 30.

Base-metals explorer First Quantum Minerals said it would acquire Antares Minerals for about C$460 million, in exchange of 0.07619 of its common share or C$6.35 cash per each share of the latter.

Crew Gold Corp. said it has been acquired by Severstal Gold, a subsidiary of Russian based OAO Severstal.

Agricultural and construction equipment dealer Rocky Mountain Dealerships said it acquired K&M Farm Equipment Ltd., a New Holland agriculture dealership, with locations in Westlock and Barrhead, Alberta, bringing the total number of branches to 33.

Oil and gas industry services provider Western Energy Services said it would acquire Pantera Drilling Income Trust for about $64 million, in exchange of its 21.9048 common shares for each unit of the latter.

Mineral Explorer Exeter Resource said that it has refiled its financial statements for the fiscal year ended December 31, 2009 to provide discontinued operations disclosures as a result of the spin-out of its Argentine assets to Extorre Gold Mines.

Uranium producer Cameco said it appointed Ken Seitz as senior VP, marketing and business development, effective January 1, 2011.

Oil and gas focused fund operator North Resources said it has appointed Andrew Davidson as CFO and Secretary.

Mineral explorer Rambler Metals and Mining PLC reported wider fiscal 2010 net loss of C$2.43 million, compared to a loss of C$2.05 million last year. However, loss per share narrowed to C$0.029 from C$0.034 in the prior year quarter. Weighted average number of shares outstanding as of 31 July 2010 were 83.58 million, versus 59.38 million as of 31 July 2009.

In economic news, Statistics Canada said non-residents purchased C$11.1 billion of Canadian securities in August with the majority of the investment going to corporate and government business enterprise bonds. Economists expected only C$6 billion in foreign purchases for August, after the C$5.5 billion recorded the month before. Meanwhile, Canadians acquired C$3.4 billion of foreign securities, led by foreign stocks.

European Market Updates

European Stocks Rise On Earnings Optimism

The European markets are rising in afternoon trading Monday, reversing some early losses, on optimism about the earnings reports from the U.S.

Crude for November delivery is adding $0.17 at $81.42 per barrel and gold is sliding $8.4 at $1363.6 a troy ounce.

In economic news, an index measuring the average asking price for a home in the U.K. jumped 3.1% in October month-over-month, following a 1.1% decrease in the previous month, property web site Rightmove said. On an annual basis, asking prices rose 2.9% after collecting 2.6% in September.

The FTSE 100 opened at 5,703 and witnessed some initial weakness as miners fell on news of the failed joint venture between BHP Billiton and Rio Tinto. The index later moved into positive territory. Despite the struggle in early trade, the German DAX, which began trading lower at 6,466, is on the rise. The French CAC 40 opened lower at 3,803. The index has been swinging across either side of the unchanged line.

The FTSE 100 is currently adding 0.29%, the DAX is rising 0.33% and the CAC 40 is gaining 0.14%.

In London, software firm Autonomy is adding 3% and Smith & Nephew is rising 2.8%. Chipmaker Arm Holdings is up 2%.

Oil giant BP is moderately up after announcing the sale of some businesses. Brewer SABMiller rose 0.2% after reporting a marginal rise in first-half lager volume.

Outside the FTSE 100, BlueBay Asset Management is surging about 30% after agreeing to be bought by Royal Bank Of Canada.

Vedanta Resources is leading the decliners by falling 2.2%. Other miners Antofagasta, Kazakhmys, Xstrata, Randgold Resources, Lonmin, Rio Tinto, Fresnillo, Eurasian Natural Resources and BHP Billiton are declining between 2.1% and 1.1%.

Royal Bank of Scotland, Standard Chartered and Barclays are moderately lower. However, Lloyds Banking Group is up 2.2%.

In Germany, airline Lufthansa is gaining 2.6%. Electronics manufacturer Siemens is rising 1.3%. Deutsche Bank is rising 1.3% and Commerzbank is adding 0.5%.

Automakers, BMW, Volkswagen, Daimler and MAN are declining moderately. Among French stocks, department store operator PPR is falling 2.8% and grocery retailer Carrefour is sliding 1.4%.

Among lenders, BNP Paribas is losing 0.8%, while Societe generale and Natixis are modestly down. Credit Agricole is gaining 0.7%.

EADS, the maker of Airbus, is leading the gainers by adding 1.2%. Utilities EDF and Veolia Environnement are moderately declining.

Philips Electronics is falling 4% in Amsterdam after issuing a cautious fourth-quarter revenue outlook.

Asia Market Updates

Asian Markets End In Negative Territory

Asian markets open for trading on Monday, the first trading session of the week, ended in negative territory following mixed closing in the US on Friday after Ben Bernanke, the Federal Reserve Chairman, failed to divulge more details about the possible quantitative easing measures to support the stuttering economy. Weakening of the commodity prices amid strengthening of the greenback against the euro and the pound and uncertainty about QE measures also impacted market sentiment as traders preferred to move into the sidelines awaiting more cues on the global economy.

In Australia, the benchmark S&P/ASX200 Index declined 37.10 points, or 0.79%, and closed at 4,652 points, while the All-Ordinaries Index ended at 4,723, representing a loss of 34.80 points, or 0.73%.

Resource related stocks ended in negative territory. BHP Billiton slipped 1.13%, Rio Tinto edged down 0.26%, Fortescue Metals lost 1.56%, Gindalbie Metals fell 1.42%, Iluka Resources shed 1.46%, Macarthur Coal was down 0.60%, Mincor Resoruces plunged 3.29%, Murchison Metals slipped 3.74% and Oz Minerals declined by 2.74%.

Oil related stocks also ended in the red on lower crude oil prices in the international market. Woodside Petroleum declined 0.80%, Santos Ltd shed 0.54%, ROC Oil Ltd lost 1.16%, Origin Energy fell 1.10% and Oil Search Ltd was down 0.94%.

Gold related stocks also ended in negative territory following drop in bullion prices in the international market. Newcrest Mining declined 2.73% while Kingsgate was down 3.37%.

Financial stocks also ended in negative territory following drop in bank stocks on Friday in Wall Street. ANZ Bank slipped 0.97%, Commonwealth Bank of Australia shed 0.88%, National Australia Bank declined 0.67% and Westpac Banking Corp. lost 1.31%. Investment banker Macquarie Group ended in negative territory with a loss of 0.85%.

In Japan, the benchmark Nikkei 225 Index slipped 1.76 points, or 0.02% to 9,498..while the broader Topix index of all First Section issues ended in positive territory with a gain of 4.14 points, or 0.50%, at 830.

On the economic front, a report released by the Ministry of Economy, Trade and Industry in Japan revealed that an index measuring tertiary industry activity in the country eased a seasonally adjusted 0.2% in August compared to the previous month, standing at 98.7. That beat analyst expectations for a 0.5% monthly decline following the 1.6% gain in July.

Mixed trading was witnessed among stocks of exporters as hopes of Government intervention in the forex market more than offset the concerns about stronger yen on exporters' earnings. Among the exporters, Sony Corp. gained 1.76%, Sharp Corp. climbed 2.04%, and Panasonic Corp. advanced 0.42%. However, Canon Inc. ended in negative territory with a loss of 0.13%.

Mixed trading was also witnessed among the automotive stocks. Toyota Motor advanced 1.21%, Honda Motor gained 1.01%, Suzuki Motor added 0.76% and Mitsubishi Motor climbed 1.00%. However, Mazda Motor declined 0.93% and Isuzu Motors plunged 2.48%.

The Indian market ended a volatile session modestly higher on Monday, with IT, oil/gas and realty stocks leading the gains. TCS (up 2.98%), Reliance Industries (up 2.26%), Tata Steel (up 1.86%) and ONGC (up 1.54%) were among the top gainers. On the flip side, Maruti Suzuki, Wipro, Cipla, Mahindra & Mahindra, Jaiprakash Associates, Tata Power, Bharti Airtel and ACC led the decliners, ending down between 1% and 3%. While a somewhat subdued trend in global equities and profit-taking by investors to subscribe to the Coal India IPO weighed on the market initially, the benchmark indexes reversed direction in the last hour of trade, buoyed by sold second-quarter results from Larsen & Toubro and HDFC. The 30-share Sensex, which tumbled to a low of 19,871 in early trading, bounced back sharply to finish up 44 points at 20,169, with 14 of its components advancing. The broader Nifty rose by 13 points to 6,076.

Among the other markets in the region, China's Shanghai Composite Index slipped 15.93 points, or 0.54% to close at 2,955, Hong Kong's Hang Seng Index plunged 288.25 points, or 1.21%, to 23,469, Jakarta Composite Index in Indonesia declined 30.11 points, or 0.84%, to close at 3,567, Seoul Composite Index in South Korea lost 26.87 points, or 1.41%, to close at 1,875, the Strait Times Index in Singapore fell 23.00 points, or 0.72%, to close at 3,181, and Taiwan Weighted Index was down 144.76 points or 1.76% to close at 8,061.

Forex Report

Dollar Gains On Euro, Stuck Near 15-year Low Versus Yen

The dollar held its ground versus other majors on Monday morning, extending its relief rally from the previous session against the euro and sterling. However, the dollar remained little changed from a recent 15-year low against Japan's yen.

Traders are taking time to assess Friday's comments from Federal Reserve Chairman Ben Bernanke, who suggested the central bank is prepared to use unusual measures to support the fragile economy, but stopped short of detailing any quantitative easing program.

Without specifics on the size and scope of further asset purchases, the dollar firmed up on speculation the package may not be as extensive as previously assumed. Whatever program is decided on, it will likely dwarf support measures from Japan, preventing a dollar rally against the yen even though Japanese officials are acting to devalue their currency.

The Fed is on watch against deflation, Dallas Fed President Fisher said this morning on CNBC, noting that falling prices would discourage economic activity. Still, Fisher pointed out that inflation is slowly rising.

The dollar hovered around Y81.25 versus the yen. A move below Y79.80 would take the dollar to its lowest ever.

Meanwhile, the buck rose to $1.3890 versus the euro, edging away from an 8-month low of near 1.4150. The dollar saw similar gains versus the sterling, improving to $1.5850 from a last week's 8-month low near 1.6100.

The dollar also moved away from record lows against the aussie and Swiss franc, while rising above C$1.0200 versus Canada's loonie.

On the economic front, the US Treasury Department will release its report on the flows of financial instruments into and out of the country for July at 9.00 a.m. ET.

At 9.15 a.m. ET, the US Federal Reserve will release its report on industrial production during September. Economists estimate 0.2% growth in industrial production for September, while capacity utilization is expected to come in at 74.8%.

The National Association of Homebuilders will release the results of its October survey on homebuilders' confidence at 10.00 a.m ET. Economists predict that the index remained unchanged at 13 for the month.

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