· Concludes 7.1% non pre-emptive share issuance. Bumi Resources has concluded non pre-emptive issuance for 1.37bn ordinary shares, priced at Rp 2,366/share. Size of the issuance equals to 7.1% of Bumi’s current issued shares of 19.4bn, which is within the company’s target to issue up to 10% of total shares. With this issuance, Bumi obtained US$360mn of fresh cash which will help the company’s equity position. Bumi plans to use the cash to repay some of its debt, and hence reduce the company’s cash financing outflow.. The company’s total shares now reaches 20.8bn with the additional shares, and we expect to see this adjustment in Bumi’s next financial result publication.
· Respectable buyers. Bumi’s counterparties on this issuance are Credit Suisse and Raiffeisen Zentralbank Osterreich AG (RZB-Austria), where Credit Suisse bought 608.6mn or 44% of the issuance while the remaining 56% was bought by RZB. The lock up period is one year starting October 5, 2010.
· Entire proceeds to retire existing debt. Bumi will use the entire proceeds to retire some its existing debt. As of 1H10, the company has US$3.4bn of interest bearing debt, US$300mn of which are callable before maturity. The loans are in the form of guaranteed senior secured notes from Credit Suisse and Deutsche Bank, which is also embedded with partial redemption option. Meanwhile, Bumi also has US$708.2mn of convertible bonds, where US$300mn are embedded with put option. The CB’s holders have the option to require Bumi Resources to redeem all or some of the holders’ bonds on November 25, 2010, May 25, 2012 and November 25, 2014. If the company pays its debt later than 2010, then it will have to redeem at a premium.
· Waiting for update on notes issuance. Meanwhile, Bumi has not shared any information on its notes issuance plan. It is reported that the company aims for US$750mn with maturity to reach up to seven years. This notes issuance will be positive for Bumi as the company will have more ample time to focus on its coal production, and hence, pave its way to achieve an annual coal production target of 110mn tons.
· Up to US$36mn of cash will be freed. In our view, Bumi’s non pre-emptive share issuance could free up some cash on interest expense. In addition, assuming Bumi uses the cash from this issuance to retire its guaranteed senior notes, the company may able to save up to US$36mn per year or US$9mn in 4Q10 as these notes carry 12% of interest rate per year. Another possibility is the cash proceeds will be allocated to repay the US$300mn guaranteed CB, which have an annual interest rate of 5% or US$300 ST loans that carry LIBOR +10% interest rate. The Latter is embedded with option to extend the loans to 36 months.
· More progress in the future. In our view this US$360mn issuance is not even close to Bumi’s US$3.4bn debt and US$708.2mn of CB, but it is still some progress for the company’s US$1.00bn debt reduction program. Going forward, we view Bumi will have a smoother course in completing the program’s targets through the IPO of its subsidiary, Bumi Resource Mineral, and also supported by the company’s coal business as prices become more favorable.
· Buy. Currently, BUMI is trading at 2011F PER of 14.4x and EV/EBITDA of 5.8x, Buy.
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