pacific money | Economy | Southeast Asia
The company’s share value has defied the broader downward trend in the Indonesian stock market since the end of 2021.
Coal is transported by barge on the Mahakam River, in Samarinda, East Kalimantan, Indonesia.
As of September 2021, the Indonesian company Bayan Resources was trading at about Rs 14,500 per share on the Indonesian Stock Exchange. For many other companies, such as singapore seathe end of 2021 was a high point for its stocks, before interest rate hikes from the Federal Reserve put the screws on stocks and stocks started to slide again.
Not so for Bayan, which defied the overall market trajectory in 2022 and hit Rs 78,800 per share 1st of July. It is now one of the most valuable companies listed on the Indonesian stock exchange by market capitalization. How can we explain this meteoric rise when most other stocks are falling? Simple. Bayan is a coal company.
Bayan, which owns several lucrative mining concessions in Kalimantan, did not have a great year in 2020 as global coal prices were depressed due to the pandemic. The company booked a net operating income of $296.7 million on $1.4 billion in revenue, showing that even in a down year, coal still has good margins. But as economic activity around the world came to life in 2021, the price of coal has skyrocketed. And so did Bayan’s earnings.
In 2021, the company’s operating profit increased to $1.7 billion on revenue of $2.85 billion. And the vast majority of that came from the export market. From 2020 to 2021, export revenue increased 116%, from $1.2 billion to $2.6 billion. Domestic sales during the same period increased a modest 23 percent, from $172 million to $212 million.
As a result of rising earnings, the company paid shareholders more than $300 million in dividends in 2021, and investors rushed to buy shares. With coal prices set to remain high in 2022 (although they are likely to cool off soon), Bayan remains an attractive stock even as stocks have generally lost value.
Bayan’s financial performance illustrates a thing or two about energy markets in Indonesia and elsewhere. First, it helps us better understand why the Indonesian government banned coal exports earlier this year. I discussed earlier the logic behind that move, but this puts some numbers on it. If coal companies like Bayan can make huge profits by chasing high prices in export markets, why would they supply the domestic market at an artificially low price? They wouldn’t, unless the government forced them to (which it did). Looking at Bayan’s export earnings versus its domestic earnings tells that story pretty clearly.
The company’s recent financial performance also shows that, like it or not, coal plays an important role in the Indonesian economy. Coal, especially during this post-pandemic price boom, is profitable. In purely financial terms, it is a good investment and Indonesian politicians want large, profitable companies that pay big dividends and are listed on the national stock exchange. It has also been good for state finances. Last year, Bayan paid $164.7 million in royalties from its coal mining concessions, almost triple what it paid in 2020. Coal exports are also helping to generate Indonesia’s current account surplus, which is a of the reasons why the rupee has held up quite well despite months of currency volatility. markets.
Coal may not be good for the climate, but in Indonesia it plays an important and often profitable role in the broader economy, as Bayan Resources demonstrates. Climate policies that ignore this reality will have a hard time gaining traction or being effective. Realistic plans to alter the economic calculus at stake here will need to go beyond better ESG disclosure requirements or a better pricing mechanism for green bonds. It will take more than the aspirational commitments announced at world summits. Ultimately, it will require difficult political trade-offs that engage with the actual structures that govern energy supply and distribution, and that begins with acknowledging the true role of coal in Indonesia’s political economy.