Oct 21, 2010

BUMI...tell me its for real

Indonesia's largest thermal coal miner PT Bumi Resources Tbk (BUMI) posted US$700 million 10.75% coupon 7 years bond issuance, and US$360 million rights issue. 
It plans to pay US$979 million of debt. If the repayment fully executed, BUMI still has US$75 million in short term loan and US$400 million long term loan, aside from itsUS$675 million in notes and CB’s and US$1.9 billion CIC loans. 
BUMI has US$836 million in receivables from its asset sales and loan to Bukit Mutiara.
"Despite improved cash flow situations, we believe market still has doubts on the transactions status: whether receivables are going to be paid, and who is (are) the buyer(s) behind non preemptive rights issue. If the market has comfort in these, we believe share price has much further upside to go," said a company update release by PT Mandiri Sekuritas on October 20 2010.
With Credit Suisse loans of US$376.2mn of annual IRR 18% as the highest cost loan and CB II with annual 5% coupon as the lowest cost loan plan to be repaid, the exercise will add value. 
"Even if we include non preemptive rights issue as the source of repayment, it still adds value as BUMI’s consensus PER11F is 9.6x (a 10.4% return for FY11), lower than 12.2% annual average interest rate for the repaid loans."
What to do next? 
On paper, BUMI has various alternative sources of repayment. In its receivables, BUMI has US$836 million from asset sales and loan to Bukit Mutiara.
BUMI also can tap PT Bumi Resources Minerals (BRM’s) IPO proceeds. Even if BUMI bought 7% of Newmont at US$444 million, there are still sufficient funds left.
BUMI has to convince market that its transactions are for ‘real’. "We think market still doubt BUMI’s transactions whether it is real. We admit it has ground, like the divestment of Mitratama Perkasa which in 1Q10 BUMI’s statement worth US$120 million for 99.83%, subsequently changed to US$190 million for just 70% in BUMI’s 1H10 statement.
Adjustments are made to changes in loan composition and addition in equity. Lower than previous forecasts were a result of our lower than realized interest charges on previous estimates. At Rp2,350, BUMI is trading at a consensus PER11F of 9.4x, lower than its peers of FY11F PER of 12.8x.

Disclosure: No position at the stock mentioned above.

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