Macquarie Bumi Resources (Underperform) - Will the regulator save minorities?

Event
Bapepam, Indonesia's capital markets regulator, has just made a presentation to the Indonesian parliament (House of Representatives) regarding recent events in the capital markets, including the Bumi's latest transactions. It appears Bapepam is considering grouping all of Bumi's three transactions, which could lead to minority approval being required.

Impact
Political pressure on Bakrie and Bapepam. It is clear that political pressure is growing on Bapepam and Bakrie/Bumi to justify recent transactions or events. Bapepam, in particular, is under scrutiny by the parliament following the Bumi transactions, Sarijaya (local securities company) and Bank Century fraud, and the Merrill Lynch lawsuit.
We welcome the regulator insisting on minority approval as we believe the transactions were undertaken at a premium to market prices with questionable links to related parties. Further, this could potentially reduce the risk of similar transactions going forward should this minority approval be implemented.
Grouping three transactions as one? We do not understand why the regulator would group three transactions into one, as they appear separate to us. The regulator appears to be under pressure to retract their previous comments.
Can a leopard (Bumi/Bakrie) change its spots? We do not think so. Even if Bapepam were able to insist on a minority approval, we think this would be disputed in the Indonesian law courts. Further, Bumi has shown its intention to circumvent minority shareholder approval, and therefore we highlight the risk of subsidiaries KPC's and Arutmin's FCF still not returning to minority shareholders via dividends.

Action and recommendation
We reiterate our Underperform recommendation and Rp500 price target. While we recognise the strong valuation argument (note that it could be a speculative trade), we do not think this is an investment grade company as we highlight the potential for other related party transactions, which could lead to a deterioration of Bumi's future free cashflow (FCF).