Bumi Resources (BUMI IJ) update – Tata to sell KPC and Arutmin back?

Bumi Resources (BUMI IJ) update – Tata to sell KPC and Arutmin back?

CLSA:
There was an article in the newspaper mentioning the possibility of Tata Power of India selling its 30% stakes in coal companies, KPC and Arutmin, back to Bumi Resources at 50% discount to the original acquisition price. Note that Tata bought these stakes back in 2007 from Bumi for US$1.2bn. The news came from some un-named source. Comment: We doubt that this would happen. According to our colleagues in India, Tata is not in financial distress at the moment. Tata has been receiving dividends from KPC and Arutmin. The 50% discount on pricing does not make much sense as this would mean Tata would sell at price lower than the US$850m borrowing used to finance the acquisition.

BASML:
Latest local talk: Tata Power of India is considering to sell back its 30% ownership in Arutmin and KPC amid difficulties to service debt, and BUMI Resources is keen to buy back the block. You can not trust the price tag.... there won't a story without U$ 650-700mio, no? The story has not develop enough to elaborate how BUMI plan to finance the purchase. Tata Power of India acquired 30% of Arutmin and KPC for U$ 1.3bio in April 2007, a price tag which implied Rp 1,600/shr for BUMI at that time. The locals added that because of this new development BUMI management may terminate its on-going plan to acquire three small mines. You can bet - there will be many twist-and-turns before anything materializes. Having said that, at 2.9x and 4.1x ’09 EPS for 20% ROE it is fair to say stock is inexpensive and could generate interest from investor PROVIDED management do not carry out various plots that raise concern over corporate governance. Elsewhere, Indonesia’s securities watchdog said that it may force PT Bumi Resources Tbk to seek approval from independent shareholders for the purchase of three small energy companies if an independent appraiser finds the purchases to be overvalued or an attempt to hide assets from creditors. No doubt the stock offers a lot of uncertainties over what will happen!