What’s new? – Bumi announced the counterparties for the non pre-emptive share issuance amounting to US$360m with a total of 1.37bn new shares (7.06% of outstanding shares) issued at Rp2,366/share. Raiffeisen Zentralbank Osterreich takes 55.6% of the new shares with total consideration of US$200m. The balance is taken by Credit Suisse. The listing of the new shares is on October 5 with 1 year lock in period.
CIRA’s comment – The completion of the new share issuance is the first important step in Bumi’s re-rating, in our view, as it substantially reduces liquidity risks. The US$360m proceeds will entirely be used to reduce debt. As per the company’s filing to the exchange, its total debt amounted to US$4.16b at the end of September. Hence, post the planned US$360m debt repayment, its debt would be reduced to US$3.8b (net gearing drops to c. 2.3x from c.2.5x).
Prior to the planned debt repayment, Bumi had two credit facilities from Credit Suisse, amounting to a total of US$565m that provides the lender with an overall IRR of 15% and 18%, respectively. Raiffeisen’s credit facility totaled US$60m and carried interest rate of LIBOR + 8%. We estimate Bumi would save c. US$45m annually (c.2.1% of 2011E EBIT) from the debt repayment, assuming Credit Suisse’s 18% IRR debt is the one being repaid. The next step in Bumi’s deleveraging process is the collection of US$440m of receivables from its asset sales, expected in 4Q10.
We maintain our Buy rating on the stock as we think valuations remain depressed. However, Bumi’s further re-rating in the short-term may be delayed if the company fails to convince the market that its deleveraging plans are in earnest. Bumi Resources (BUMI.JK; Rp2,200; 1H)
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