You know that person who is always asking friends or family to help him pay his bills? You know the type, the guy who never seems to have his wallet, and always seems to forget to forget to pay you back?
Coal companies like Bumi Resources in Indonesia are just like this guy, except they run to the banks, and the customers of these banks are footing the bill.
There’s mounting evidence that Bumi Resources is a black hole for investor’s money.
The latest evidence is that the credit rating agency Standard & Poor has downgraded their credit rating to selective default from default imminent with little prospect for recovery. This downgrading is a strong signal of how risky it is to invest in coal companies like Bumi Resources.
The downgrading is also evidence that the efforts of Greenpeace and allies to warn regulators and investors of the risk of investing in Bumi Resources and other similar investments into unsustainable fossil fuels like coal are having an effect.
The evidence about Bumi’s money problems has been building for some time. Now, it is Indonesia’s most indebted coal company with $1 billion in obligations within the coming 18 months, making it the weakest of four coal mining companies in Indonesia, according to Moody’s Investors Service.
Yet bondholders and banks continue to prop up Bumi Resources by extending their bonds and entering into loan agreements that allow Bumi Resources to get away with non-repayment! For example, the Chinese Investment Corporation (CIC) (China’s sovereign wealth fund) loaned Bumi Resources $1.9 billion US in 2009.
Bumi Resources cannot pay back the loan, so now CIC is going to enter into a debt-to-equity swap with the company, so it doesn’t have to pay back the $1.9 billion.
This effectively further increases the risk of CIC’s investments, trapping their capital on a stranded asset. It is such a bad investment that the National Audit Office of China’s central government has even come out and criticized CIC for its loss-making investments and lack of due diligence.
Similarly Bumi Resources currently has bonds due to the order of $375 million US, and because they can’t pay their bondholders back, banks such as HSBC, Deutsche Bank and Credit Suisse are currently extending their bonds once again.
Greenpeace and our allies have been trying to communicate to investors that they should stop rescuing companies like Bumi Resources. We have challenged Bumi’ attempts at debt-restructuring by questioning its procedural adequacy with the Indonesian Securities Exchange. We’ve asked the Exchange to review Bumi Resources’ capital raising attempts and its lack of full and frank disclosure for the environmental and financial risks involved in funding the company.
At the same time, we have been appealing to international investors and bondholders and communicating the environmental, financial risks in helping Bumi Resources.
Funding coal companies like Bumi has huge environmental consequences.
The production of coal causes environmental pollution. Land and water resources are destroyed.
Bumi Resources is a big player in this destruction since it is one of the largest coal mining companies in Indonesia. Bumi Resources is currently the most significant coal producer in Indonesia. Production in 2012 was 74 million tonnes.
It owns the Kaltim Prima Coal project in East Kalimantan that produces around 50 million tonnes a year as well as the Fajar Bumi Sakti project near Samarinda, the Pendopo project in Sumatra, the Berau Coal project and the Arutmin project in South Kalimantan.
Satellite imagery and on-the-ground reporting have linked Bumi Resources to human rights abuses and massive contamination of river systems.
Bumi’s operations have had catastrophic impacts on local communities that depend on clean water for their livelihood, food, and cultural gatherings. These are just the local effects. When coal is exported and burnt, it worsens the rate of climate change that is already affecting our planet and causing human misery. Burning more coal will lead to more extreme weather events and more Arctic warming.
Marina Lou is a Greenpeace International Legal Advisor specializing in financial markets regulation.
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