• Bumi stressed its plan to reduce its existing debt by US$1bn this year. However the company did not share shared the details about the process. Previously it was reported that the e scheme will be conducted through non pre-emptive right issuance. Bumi said it will resume this non pre-emptive right issuance plan as the company sees demand and appetite for coal based stocks is getting higher.
• With this step, the company’s debt will decrease to US$2.8bn from US$3.8bn on December 2009. Hence, net debt to equity ratio decreases to 1.9x from 2.6x. However, if the scheme is conducted through debt to equity mechanism, then, the company’s net debt to equity ratio will become much lower to 1.1x, assuming there is an additional equity of US$1bn.
• This plan would help the company’s financial performance as interest expense will lessen. We view that every 10% reduction of interest expense will increase the company’s bottom line by around 5%.
• Currently BUMI is trading at 2010F PER of 19.1x and EV/EBITDA of 7.5x, buy.
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