Brief Indonesia: Prabowo Errs Again; Widodo Lead Intact; Riady’s Mei-Egg-Karta; BI Holds; Repsol’s Find; Debate Text and more

In this briefing:

1. Prabowo Errs Again; Widodo Lead Intact; Riady’s Mei-Egg-Karta; BI Holds; Repsol’s Find; Debate Text
2. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)
3. Petrus Doubles Down On Ophir Energy
4. Foldable Smartphones to Debut in 2019; Will It Aid an Industry Turnaround?

1. Prabowo Errs Again; Widodo Lead Intact; Riady’s Mei-Egg-Karta; BI Holds; Repsol’s Find; Debate Text

Prabowo again squandered a chance in a debate to gain ground, as Widodo appeared more confident and in command.  Prabowo’s incessant efforts to sow fear of foreigners does little to weaken his opponent.  Widodo’s lead was intact as of late January, despite claims from two pollsters (Indomatrik, Median) who are demonstrably unreliable or even fraudulent.  Lippo Group owner James Riady suffered repudiation: after having testified in court that he met the Bekasi District chief by coincidence and did not discuss his Meikarta project with her, KPK prosecutors played a phone recording that shows otherwise.  BI has held rates steady, citing the current account deficit after a gaping January trade deficit.  The government continues its efforts to sack more than 2,000 civil servants who are corruption convicts.  Repsol discovered gas in South Sumatra. 

Politics: The second of five debates in the presidential election marked another missed opportunity for Gerindra Chair Prabowo Subianto to gain ground on President Joko Widodo.  Instead, the incumbent again landed blows that hurt the retired general, highlighting his unfamiliarity with e-commerce jargon and drawing attention to his land assets measuring 340,000 ha.  For his part, Prabowo pointedly projected a conciliatory demeanor, perhaps to dispel perceptions that he is temperamental, but it squandered a chance to assail the incumbent and thereby persuade voters to opt for change.  Prabowo adhered to form by advocating protectionism and expansion of state involvement in the economy.  He used nearly every answer to disparage foreigners, which is an error: sowing suspicion of foreigners does little to weaken his opponent (Page 2) (Transcript translated by Ref Wkly, p. 8).  Hard‑line Islamic groups convened again in Jakarta (p. 3). 

Surveys: In the July 2014 election, the Center for Strategic Development and Policy Studies (Puskaptis) performed a Quick Count survey of ballot‑station results that declared Prabowo the winner, and the Association of Polling Firms (Persepsi) ousted Puskaptis from its ranks.  But the head, Hasan Yazid, has re‑emerged as the founder of Indomatrik, another purported polling firm.  Yazid claims to have findings showing Prabowo’s support on par with Widodo’s.  Along with supposed findings from another obscure agency, Median, this is injecting confusion into perceptions of the presidential election.  In fact, two reputable agencies determined in late January that Widodo’s lead was intact (p. 4).   

Justice: In the Meikarta‑Lippo bribery scandal, prosecutors dispute the testimony provided in court last month by group owner James Riady (p. 5).  Information Minister Rudiantara faced questioning from the Election Oversight Agency (Bawaslu) for having jested, in an event with ministry personnel, about preferences for presidential tickets (p. 7).

Policy News: Cabinet members are preparing measures that will finally force regional officials to sack civil servants convicted of corruption (p. 7). 

Energy: Spain’s Repsol announced the largest gas discovery in 18 years – a reservoir in Musi Banyuasin, South Sumatra measuring two trillion cubic feet (p. 8).

Economics: Bank Indonesia (BI) kept its benchmark rate unchanged at 6.0% (p. 9).

Appendix: The presidential candidates debated the topics of infrastructure, the environment and natural resources on 17 February (transcript and analysis, p. 9).

2. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)

• China implements coal import caps specifically targeting Australian producers
• Unclear as to how widespread these restrictions will eventually be
• Thermal and metallurgical coal exports affected
• Impacting ~A$8.4Bn of metallurgical coal exports; or 4.4% of national income
• Thermal coal exports affected worth ~A$3.8Bn; or an additional 2% of national income
• Collectively, thermal and metallurgical exports equate to ~0.9% of Australian annual GDP 
• Actions appear to be a response to blocking Huawei bidding for the 5G network
• Recent Chinese cyber-attacks harden Australian Government’s resolve
• Expect similar Chinese measures (in time) to be applied to other commodities and industries

3. Petrus Doubles Down On Ophir Energy

Petrus Advisors (3.5% shareholder) has dialled up the pressure on its opposition to Medco Energi Internasional T (MEDC IJ)‘s £0.55/share offer for Ophir Energy (OPHR LN), specifically calling into question Bill Schrader (Ophir’s Chairman) “unprofessionalism”.

Petrus (again) highlighted the premature termination of the Fortuna licence. Ophir announced a $300mn non-cash impairment in early January following the denial of the license extension for the Fortuna project in Equatorial Guinea (EG), having previously written down $310mn back in September. Ophir had invested ~US$700mn in the licence. Petrus accused Schrader of dropping the ball after the departure of CEO Nick Cooper in April 2018, who held key businesses relationships in EQ.

In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco, with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis.

Furthermore, Petrus reckons no marketing effort has been for the Mexican license and the 20% ownership in Blocks 1 & 2 in Tanzania, which together have low-end value of $60mn (£0.065/share).  Petrus added that Schrader had not actively solicited and considered alternative offers from other buyers; together with stonewalling demands for Ophir to return capital to shareholders.

Petrus signed off its latest salvo with a cordial “This is your final reminder to preserve and build value. We reserve all our legal rights in this situation“.

Further stirring the pot is alternative hedge fund Sand Grove, who has increased its exposure, via cash-settled derivatives, to 17.28% (as at13 February), up from 6.79% on the 1st February. I have heard, but yet to confirm, there are other shareholders seeking to disrupt this Offer.  Ian Hannam, who advised Ophir’s board on its 2013 right issue, is understood to have also written to Ophir’s interim CEO Alan Booth and the board saying Medco’s offer is too low.

Trading marginally through terms. Medco’s Offer is conditional on 75%+ approval from Ophir’s shareholders, which appears tenuous.

Medco has the option to switch into a Takeover Offer, which in theory could be conditional on a 50% acceptance level, if Medco was in any way inclined to maintain Ophir’s listing. And a switch to a Tender Offer with a reduced shareholder condition, may further flesh out an alternative bidder to come over the top.

Ophir appears a worthwhile punt up at or just below terms. The next key event is the expected issuance of the Scheme booklet on the 28 February.

4. Foldable Smartphones to Debut in 2019; Will It Aid an Industry Turnaround?

Plans regarding Samsung and Huawei’s foldable smartphones are out. The companies, which happen to be two of the largest contenders in the smartphone landscape are expected to unveil their foldable smartphone prototypes this month. In 4Q2018, Samsung, coming in first place, held a market share of 18.7% while Huawei, in third place, held a market share of 16.1%. Both companies are following different strategies when it comes to their foldable phone models.

The concept of foldable phones revolves around devices that can be folded into the size of a smartphone or opened up in to the size of a tablet. Huawei is said to be planning to introduce their foldable smartphone with 5G compatibility while Samsung is planning to release their foldable model with 4G compatibility. The market leader aims to leverage the expertise it has gained on its display technologies in its foldable smartphones.