UBS Investment Research Bumi Resources: Addressing short-term maturities

Mapping out the repayment components
We have received quite a fair bit of questions on how Bumi Resources (Ba3/BB) will address its short-term debt maturities. We attempt to map out the repayment components in this article. Bumi has in total USD965m debt maturities in the nine months following Mar 2010 (see Table 1). We have compiled a list of the potential resources: 1. USD60m cash on hand (as of Mar 2010); 2. Redemption of USD225m short-term investments from Recapital; 3. USD210m proceeds from asset sales (sale of Enercorp from Thionville Financier and PT Mitratama Perkasa from PT Cahaya Pratama Lestari); 4. 473m Treasury shares (26-July closing: USD90m); 5. USD300m loan repayment from Bukit Mutiara; and 6. Non preemptive shares issuance (the company has planned for USD508m). This assumes operating cash flow just covers capex & investments and dividends. Cash on hand may have changed as Bumi has raised two loans subsequently to Mar 2010 balance sheet date according to its disclosure (USD50m from Deutsche Bank and USD75m from UBS), this may change the cash balance on hand. We also note that there are some moving parts, for example, the success of Berau/Bukit Mutiara in refinancing at least USD900m (USD850m has been secured so far via bonds and loans), the cash component in the rights issue, and the timely repatriation of cash from Thionville Financier, and Cahaya Pratama Lestari and Recapital. After all, Bumi may still go for refinancing should market conditions allow. As we have highlighted earlier, refinancing risk is a key concern which caps the potential upside of the bond. We maintain Hold on BUMIIJ’16 (mid-yield 11.23%).

The CB puts are most critical
We think it is most critical for Bumi to address the two CB puts, among the USD965m short-term maturities. They amount to USD129m and USD302m (totalled USD431m), maturing in Oct and Nov 2010 respectively, taking into consideration of the put premium and assuming everything is put. This could potentially be handled by 1. USD60m cash on hand; 2. USD225m in short-term investments; and 3. USD210m payment from asset sale. Note that the obligation could be lower than USD431m if not everything is put back. By meeting the CB puts, we think it would go a long way in alleviating Bumi’s re-financing risks. The other key obligations are with investment banks (e.g. Credit Suisse and JP Morgan), and in particular, the USD300m from Credit Suisse contains an extension clause which allows Bumi to defer the payment till Oct-2012 from Oct-2010 with an amortising schedule starting from Nov-2011.

Negative headlines also an overhang
Another overhang on Bumi’s bond performance is the negative headlines on corporate governance. News reports two weeks ago suggested that there is a material difference in the COGS record in Bumi’s 2008 and 2009 financial against Darma Henwa (DEWA, 44% owned subsidiary). Bumi responded that there was a formatting problem and stressed that the total COGS remains unchanged. Moreover, last Thursday a local newspaper also reported that the Jakarta Stock Exchange imposed an IDR500m fine each on Bakrie & Brothers and two affiliated companies after these companies could not explain a deposit discrepancy in their financial reports. Meanwhile, Capital Market Supervisory Board stated that the agency could also continue the investigation on the case if deemed necessary.