Deutsche Alert on BUMI - Implication of Newmont Indonesia's IPO plan

As reported in WSJ, Newmont Nusa Tenggara (NNT) plans to seek approval for the IPO of up to 10% of new shrs to raise US$800mn (implies US$8bn equity valuation) in a 19Aug EGM. NNT's current shareholders inc.

Newmont&Sumitomo (56%); Pukuafu (20%); the Bumi/regional govt JV (24%). A domestic listing could substitute for the 7% foreign stake selldown initially required this year.

Implications for Bumi - Risk to BRM IPO & consolidation plan:
1) We believe that the NNT IPO could undermine Bumi's plan to IPO its noncoal assets under Bumi Resources Minerals (BRM), as the NNT stake is BRM's single largest & only operating asset. Via a listed NNT, investors can get direct access to the asset, instead of having to face potential governance risk at BRM. Also, the main cashflow from NNT to BRM is thru dividend. Via a listed NNT, minority investors get 'un-cut' version of dividend straight from NNT, rather than thru BRM-Bumi-then to minority, likely subjected to payout ratio & additional tax.

2) We think Bumi took a strategic view on NNT in being able to ultimately obtain a controlling stake, eg, via the selldowns. The NNT IPO could thwart BRM's consolidation plan, essentially rendering its 24% stake as nothing more than an associate investment & BRM unable to leverage on NNT.

But riding on the NNT listing could help Bumi deleverage, or would it? The only risk to our thesis above is if Bumi decides to sell its NNT stake via the mkt post the NNT IPO, at double the cost. Bumi's diluted NNT stake may be worth US$1.7bn @the above price & implies a US$840mn gain above its US$885mn purchase cost. We believe that this could be positive if Bumi uses the money to deleverage (esp. given the hefty US$450mn debtrepmts due this year). The question is would the company necessarily deleverage, given large capex plans on its non-coal greenfield deposits & acquisition appetite.