Indika: Potential acquisition – (updated version of yesterday’s comment) - Last Friday, news reported that Indika is one of the bidders for a stake in the Singapore-listed Straits Asia Resources (SAR; market cap: USD674mn as of today’s close). SAR owns two operating coal mines in Indonesia, with total reserves of over 111mn tonnes. Straits Resources (SRL), the parent and 47.1% shareholder of SAR, was reported to have received a few bids for its stake, which could worth at least USD318mn. We are not surprised by Indika’s interests in SAR as the company continued to sit on its IPO proceeds (cash on hand was USD228mn as of Sep 08), and has indicated before that they would be looking for targets especially mining assets. In fact, SAR is a cash generative asset as opposed to a greenfield site. However, management has provided little guidance as to its game plan for SAR. After all, it is only one of the bidders for the asset (other bidders as reported by the newswire include Noble Group (BB+/Ba1) and Xstrata Plc (BBB/Baa2)), and whether it will be joined by other partners is not yet known.
We expect Indika to pursue its expansion strategies within its ability and the financial parameters of the dollar bond (including the 2.5x FCCR). Hence, we
maintain our BUY recommendation on Indika.
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