Savvy Contrarian
Category: Special Features By : Ulisari Eslita Read : 534 Date : Wednesday, January 04, 2017 - 14:11:59




Ahmad Zamroni / Forbes Indonesia

As Warren Buffett once said, investors should be “fearful when others are greedy and greedy when others are fearful.” This mantra could well describe the strategy of Hilmi Panigoro, president director of a PT Medco Energi International—greedy while others are fearful. For over a year, in the midst of a continuing slump in commodity and energy prices, Hilmi has been buying assets in these sectors. He’s taking bold steps. Within three months last year, he committed close to $3 billion in two major transactions. Here are the details: in November, Medco closed an acquisition agreement with U.S. oil giant ConocoPhillips to buy a 40% stake in an oil and gas block at the South Natuna Sea Block B for $239 million. In September, Hilmi finalized an agreement for Medco to buy an 82.2% stake in Newmont Nusa Tenggara, a copper and gold mine in Batu Hijau, for $2.6 billion.

“When commodity prices are near the bottom, it is the time for acquisitions since prices are reasonable. Hopefully, when the cycle is going up, we can reap what we sow today,” says Hilmi, 61, in an interview in the top floor of the Energy Building (which Medco owns) in Jakarta’s SCBD, where senior management have their offices. For his vision in being a savvy contrarian, completing two landmark deals, Hilmi clearly stands out to be qualified for the title of Forbes Indonesia’s Businessman of the Year.

Hilmi’s decision to acquire those assets is also remarkable in that he was able to secure the financing despite the company in the past few years facing some major challenges. Last year, Medco booked negative net income of $188.1 million, $216 million of EBITDA, and $2.2 billion of liabilities. The company was in deep trouble, facing a major downsizing or possibly even worse.

Mulling his options, Hilmi weighed two choices to revive the company. First, he could lower debt by selling assets and cutting back operations, the path taken by many other companies. If he did so, he would help balance out debt and EBITDA. That approach would have shrunk the debt but also the company. 

The other option, which Hilmi took, was not to cut debt to match reduced EBITDA, but to raise EBITDA to cover more debt. To do that, he had to add to the existing debt, but as long as the assets were good investments, the cash flow would help cover those additional debt costs. His decision seems to have been proven right. In the third quarter of 2016, Medco successfully booked $22.3 million of net income. “Hopefully with these acquisitions, next year our EBITDA would be $1.4 billion, with total debt of $2.3 billion. Look at the ratio. It is not even two to one,” says Hilmi with pride.

Investors also liked what they saw. Medco’s stock price’s had fallen from Rp 3,850 on October 1, 2014—its five-year high—all the way down to a five-year low of Rp 702 on January 1, 2016, a drop of 82%. As Hilmi start pursuing his strategy, Medco’s stock price climbed back to a high of Rp 1,651 by April 1, and now hovers around Rp 1,305, a rise of more than 80% from the start of 2016. Hilmi’s family, which owns 56% of the firm, have also seen their net worth climb. Hilmi’s brother Arifin, is listed as the country’s 48th richest man, worth an estimated $475 million, according to the 2016 list of Indonesia’s 50 richest. 

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