On 23 Sep, the company announced the intention (to Bapepam, IDX, and the public) to issue new shares on 30 Sep, that will be distributed to the buyer(s) on 5 Oct. The new shares are not offered to existing shareholders, based on the EGM approval dated 24 Jun. The company will issue 1,369.4mn shares, or 7% addition to existing shares outstanding, at Rp2,366 that represents 5% premium to last close. BUY.
Impact:
1. Refinancing concerns addressed
The deal will raise around USD360mn for Bumi, addressing market concern that the company may have difficulty meeting its short term debt repayments, if holders of the guaranteed CB II (US$251mn outstanding) exercise their option to redeem (put option) on 25 Nov. The market sees redemption of CB II as a likely scenario, given out-of-the money share conversion option at above Rp3,000/share and unattractive coupon of 5%.
Table 1. Payable and source of cash (US$ mn)
Payable
CB put option (Nov 2010) 250.9
JPM (Oct 2010) 146.3
Leases (current maturity) 97.6
LT loans (current maturity) 1.6
Sub-total 496.4
Source of cash
Cash on hand (Jun-10) 66.8
New share issue 360.0
Receivable from Bukit Mutiara 100.0
Sub-total 526.8
For year 2011, Bumi’s refinancing schedule appears light. It is probably fair to say that the company has passed the point of stress with regards to debt service.
Table 2. Repayment schedule (US$)
2011 2012 2013 2014 2015 2016
Country Forest 0 0 600 600 700 0
CS, DB senior note 0 0 0 0 0 296
CS 2010 facility 0 271 0 0 0 0
DB 2010 0 98 0 0 0 0
Raiffeisen 80 0 0 0 0 0
Financial leases 59 59 59 0 0 0
CB II 0 102 0 0 0 0
Guaranteed CB I 0 0 0 356 0 0
Repayment schedule 139 529 659 956 700 296
2. Debt reduction plan looking more credible now
Bumi’s investor relation unit has previously stated the company’s intention to reduce debt level by around US$800mn (or 18% of gross debt per Jun-10) in 2H10. Level of doubt was high prior to this event, but the plan is looking realistic (and more credible) now. I actually think the amount of debt reduction can be bigger than just US$800mn, but it will depend on receivable collection and acquisition plan (in particular, the remaining 7% stake in PT Newmont Nusa Tenggara offered at around US$440mn). Stock market investors have placed great concern on the continual rise of Bumi’s gross debt position of late; a trend reversal should be seen as a major positive.
Table 3. Source of debt reduction (US$mn)
Issuance of new shares 360
2H10 EBITDA less tax 250
Receivables from asset sale
* Bukit Mutiara (total 300) 100
* Mitratama Perkasa 190
* Gallo oil 290
* Enercorp 45
* Sub-total 625
IPO of subsidiary 240
Total 1,475
3. Scope for lower borrowing costs
Notorious for its lack of balance sheet discipline, the Bakrie group and Bumi Resources are currently paying their debtors very high yield. Bumi originated a big proportion of its debt in late 2009, when risk aversion was still high after sub-prime crisis. Those debts are costing Bumi LIBOR plus 10-12%, with Credit Suisse and JPMorgan as the main lenders outside of CIC. New lenders are appearing around March 2010, namely UBS and Deutsche Bank. DB lent a noteworthy US$100mn in April 2010, pricing the loan 500bps cheaper at LIBOR+5% for two-year tenor.
INVESTMENT THESIS
Bumi offers the second most attractive EV/reserves valuation amongst the listed Indo coal stocks, at US$3.46/ton (reserves) and US$0.94/ton (resources), after adjusting for an estimated US$1bn equity value of its minority stake in PT Newmont Nusa Tenggara. Indo Tambang trades on US$15.48 (reserves) and US$2.30 (resources), Adaro trades on US$8.16 (reserves) and US$1.72 (resources), Indika on US$6.93 (reserves) and US$2.13 (resources), while PT Bukit Asam on US$2.13 (reserves) and US$0.45 (resources). BUY.
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