In theory, the continuing search for high yield papers (driven by the lower for longer cost of money) should be a blessing for the Bakrie group, if they play their cards right (a big IF, still). If the group can show some balance sheet discipline and de-leverage each of the Bakrie companies to a comfortable gearing level, there is scope for their equity values to normalize. Fear of group-wide default has caused each of the Bakrie stocks to trade at steep valuation discounts to their local peers.
My meeting with BNBR representatives suggests some de-leveraging progress. The company may report a decline in its total debt outstanding, from Rp9.6trn as of Jun-10 to around Rp8.8trn as of Sep-10. Debt maturity schedule has been pushed back, with the biggest repayment (Rp4trn) to come in early 2012. Shorter term repayment needs have been addressed by a share swap deal with Glencore, which raised US$200mn for BNBR (the company has the right to buy back Bumi shares within two years). (see note 44 on subsequent events, page 138 of the attached 1H10 results). So it appears that refinancing pressure point for BNBR has passed, for now. Also, the company has set-up a new cash cow within BNBR, Bakrie Energy International, in Sept-09, that contributed Rp40-50bn quarterly cash flow in 1H10.
The meeting suggests that BNBR may re-launch its US$100mn bond offer soon. They attempted an equity linked note (linked to Bakrie Plantation shares) offer in early 2010, but had to postpone the deal due to Greece concerns. Note that bulk of the Rp8.8trn BNBR debt is Rupiah denominated costing 18-19% (in the form of MSN held by a consortium of local debtors), so there should be plenty of room to lower the debt service cost if the USD equity linked note issue is successful.
What I really want to see as investor in Bakrie stocks is a sustainable structure whereby BNBR can comfortably service its debt using recurring dividend income from its subsidiaries. For that, gearing levels in both BUMI and BNBR must come down. Non pre-emptive share issue by BUMI should be a good starting point. While I like gold and can appreciate Bakrie’s attempt to take-over control of PT Newmont Nusatenggara – I would much prefer to see BUMI divesting its stake in PTNNT, if the hope for control is no longer there. BUMI may show significant capital gain if it chooses to divest NNT stake, lower the gearing ratio to a comfortable level, and ramped-up is recurring dividend.
All-in-all, the situation is not looking as a mission impossible. In fact, the macro backdrop is supportive. It boils down to a choice between empire expansion or equity value accretion for the Bakrie family.
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