Oct 24, 2010

Who is Borneo Lumbung Energi?

Hard coking coal producer PT Borneo Lumbung Energi Tbk (BORN) schedules a public expose and due diligence meeting of the IPO tomorrow. 
Share holders:
Borneo Lumbung Energi is 99% controlled by PT Republik Energi and Metal, which is 99% owned by PT Republik Komoditi.
Operational:
Borneo Lumbung Energi manages and operated two subsidiaries, PT Asmin Koalindo Tuhup (AKT), the only hard coking coal miner in Indonesia, and PT Borneo Mining Services (BMS), equipment rental to AKT.
AKT owns two coking coal mining blocks in Kalimantan, dubbed Kohong and Telakon with 21,630 hectares area.
Based on the IPO prospectus, Kohong is estimated to have 69.2 million tons hard coking coal reserves and 280.7 million tons resources. Telakon is estimated to own 98.1 million tons resources.
Borneo Lumbung Energi's production capacity is 3.6 million tons of hard coking coal by the end of 2010 and increased to 5 million tons in 2011.
As of June 2010, BORN produced 752,107 tons and 617,603 tons sales. Average selling price was at US$191.50 per ton with US$57.50 cash cost. Average stripping ratio stood at 12.9 times.
During the second half of 2010, BORN plans to spend US$50 million capital expenditure to buy mining equipments in a bid to boost production capacity to 3.6 million tons by the end of 2010.
BORN estimates that production and sales volume to reach 1.8 million tons and 1.6 million tons respectively in 2010.
BORN sells all its coking coal through its marketing agents, Glencore, which has a 3 year contract (expiring on July 23 2010), Sumitomo and AsiaCo.
Morgan Stanley research said Glencore charges BORN a 4.5% commission. For Sumitomo, commission is paid by customers, which are limited for Japanese clients and AsiaCo (US$0.5 per ton up to maximum of 300,000 metric ton in Japan and US$1 per ton for sales outside Japan).
In May 2010,  BORN entered into 1 year local take-off contract to supply a domestic customer, PT Shenrong Carbon with 10,000 metric ton per month.
BORN also has secured coal sales agreement of 1 million tons from Chinese company dubbed Zhonglian Resources Company Limited on October 4 2010. Under the agreement, AKT will sell 1 million tons coking coal at the negotiation price based on the quarterly market coking coal.
Financial performance:
BORN posted Rp1.07 trillion operating revenue, Rp350.90 billion operating profit, operating margin of 32.65%, and Rp20.65 billion net profit.
Morgan Stanley, one of joint global coordinators and book runners, estimates that BORN is expected to book Rp2.66 trillion revenue, Rp1.07 trillion EBITDA, and Rp238.2 billion net profit in 2010. BORN is estimated to post a steep jump in revenue to Rp6.76 trillion, Rp2.92 trillion EBITDA, and Rp1.49 trillion net profit in 2011. As of June 2010, BORN reported a US$374 million net debt
IPO Summary:
BORN aims to offload 4.4 billion new shares, representing 25% of the total shares issued of 39.81 billion. By selling 25% stake, BORN expects Rp5.15 trillion proceed, equal to Rp20.6 trillion market capitalization.
Morgan Stanley reports BORN valuation is around US$1.5 billion-US$2.1 billion based on 2011 EV/EBITDA of 6-8 times.
BORN plans to use 50% of the IPO proceed for debt refinancing, to Sinarmas Sekuritas, CIMB Bank, and RZB Bank. About 35% of the proceed is intended to support capital expenditure, and 15% is for working capital and general corporate purposes. Borneo Lumbung Energi mandates CIMB Securities, Credit Suisse, and Morgan Stanley as joint underwriters. Roadshow is scheduled on October 25-November 9 2010, pricing is scheduled on November 10, and listing date is estimated on November 29 2010.
 
Disclosure: No position at the stock mentioned above.

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