Nov 15, 2010

Bakrie & Glencore agreement on BUMI

Parent company of Bakrie Group, PT Bakrie & Brothers Tbk (BNBR), today surges 5.77% to Rp55 per share, despite a prolonged 'sleep'. This has made the stocks lagging from the massive advanced on Indonesia Composite Index. 
However, during a public expose at Investor Summit last week, Bakrie & Brothers, attended by completed board of directors, has signaled that the company would come with positive stories. Is it time to play Bakrie & Brothers?   
The company aims to pay Rp2 trillion debts by the end of this year. The problem is where is the money to pay the debts?
According to Bakrie management, the company will use financing from non-core assets disposal and investments redemption.
As of June 2010, Bakrie & Brothers recorded Rp9.55 trillion debts. Long term debts reached Rp7.79 trillion and short term debts were Rp1.76 trillion. The largest long term debt is medium term promissory notes worth Rp5,21 trillion as a result of restructuring with its creditors Piper Price Company Ltd. Tranche A notes amount Rp1.16 trillion and tranche B of Rp3.10 trillion.
Tranche A notes, charged an annual interest rate of 15%, will mature on January 12 2012. Tranche B notes were restructured into three notes, A worth Rp31 billion, B worth Rp279 billion, and C worth Rp2.79 trillion with maturities in 2009, 2009, and January 2012. Bakrie & Brothers had paid the notes A and B.
The source said Bakrie & Brothers has agreed with notes holders to pay Rp1 trillion debts. "When the stock market keeps bullish, Bakrie & Brothers is estimated to settle up to Rp5.2 trillion medium term notes," the source said
Glencore swap agreement
Bakrie & Brothers managed short term investments worth Rp1.19 trillion at Asean Agricultural Fund of Rp640.62 billion and Rp556.11 billion at Recapital Asset Management. Bakrie has recorded Rp11.45 billion banks deposit.
But, don't forget, Bakrie & Brothers has managed a shares swap transaction agreement worth US$200 million with one of the global largest commodities player Glencore International AG. The agreement, signed on June 26 2010, has made Glencore to be one of shareholders at Indonesia's largest thermal coal miner PT Bumi Resources Tbk (BUMI). The latest data shows that Glencore holds 4.98% stake or 968 million shares in Bumi Resources (before non-preemptive rights)
Based on Bakrie & Brothers's June financial report, under the swap agreement, Bakrie has rights to buyback Bumi shares from Glencore within 2 years. 
The source said Glencore had purchased Bumi shares at the average price of Rp1,840/share, a 37.23% discount from Bumi current price at Rp2,525/share, via local brokerage Sinarmas Sekuritas.
When Bakrie & Brothers calls the rights, Bakrie requires Rp1.78 trillion financing to buyback Bumi shares from Glencore, enlarging the ownership at Bumi from 19.30% to 24.28% stakes.
But, it seems Bakrie won't keep Bumi shares. Bakrie will dispose Bumi shares when the price is high. "Bakrie will use the buyback rights and dispose Bumi shares at the market price."
Considering Bumi's current market price at Rp2,525 per share, Bakrie will bag Rp663.08 billion from the shares sale.  But, the capital gain would be higher when Bakrie sold Bumi shares at the higher level.

Disclosure: No position at the stock mentioned above.

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