Nov 15, 2010

Noble, Berau deal, close to unlock (1)

Indonesia's fifth largest coal miner PT Berau Coal Energy Tbk (BRAU) today rose 6.25% to Rp510, propelled by the market speculation that Noble Group would acquire up to 30% stake  or 10.47 billion shares in BRAU at Rp540/share from its controlling shareholder PT Bukit Mutiara.
The proceed will be used by Bukit Mutiara to pay a total vendor notes of US$580 million or Rp5.16 trillion to Rizal Risjad, son of Ibrahim Risjad which sold Berau Coal to Bukit Mutiara, via Montrose International Trading Limited, maturing on December 30 2010.
Bukit Mutiara had issued 8% vendor notes worth US$580 million in December 29 2009 as part of financing when it acquired 90% stake in directly PT Berau Coal from Rizal Risjad at the consideration price of US$1,18 billion.
When the vendor notes were issued to Montrose International, Bukit Mutiara, controlled by Recapital Advisors, which is ultimately owned by Rosan P. Roeslani of 73%, Sandiaga S. Uno of 12%, and Elvin Ramli of 15% stake, has pledged 66.67% stake in BRAU.
To pay the vendor notes, Bukit Mutiara has four options. First, the company could convert some or all the notes into shares in BRAU. Second, Bukit Mutiara could dispose the stake in BRAU to strategic investor. Third, the company might secure other financing to pay the vendor notes in cash, and fourth, renegotiation with Montrose.
Based on the prospectus of BRAU's IPO, Bukit Mutiara had intention to change agreement with Montrose, allowing Bukit Mutiara to pay US$280 million of the total vendor notes via shares transfer in BRAU, and pay the remaining notes in cash.
Referring to the closing market price on Friday last week, Montrose could own 5.19 billion shares or 14.87% stake in Berau Coal Energy. 
Locked-up period     
A source familiar with the matter some consortium of investors bought BRAU shares during the IPO had been locked-up for 3 months. Considering to the locked-up, due on November 18 2010, they could transfer their shares after the period.
On the other hand, Bukit Mutiara has been locked-up for 8 months after the IPO as well. Bukit Mutiara is not allowed to transfer the stakes in Berau Coal Energy to Montrose during the locked-up period. In return, Bukit Mutiara should renegotiate with Montrose.
If Bukit Mutiara would transfer BRAU shares at Rp540/share, Montrose could control 13.22% stake in Berau Coal Energy.
How about the remaining vendor notes owed to Montrose?
The source said Noble Group, after securing a mandate for exclusive marketing rights from Berau Coal, seems has more opportunity to win the acquisition deal on Berau Coal Energy.
"Noble might be the winner for the deal by paying Rp540/share for at least 14.15% stake in Berau Coal Energy. The announcement might be made this week [tomorrow], close to the end of locked-up period," the source said.
Bukit Mutiara could use the sale proceed to pay the remaining notes worth US$300 million to Montrose.
Another bond with Avenue
According to a research report on Berau Coal Energy published on October 5 2010 by J.P.Morgan Securities, Bukit Mutiara is assumed to issue US$200 million bond to Avenue Capital. If the bond is secured, Bukit Mutiara could use the proceed to pay the remaining vendor notes to Montrose.
The IPO prospectus of BRAU revealed that Bukit Mutiara had pledged about 18.77% stake in Berau Coal Energy to Avenue Luxembourg S.A.R.L. regarding to US$50 million loan facility.I
Bukit Mutiara was mentioned also in talks with Avenue in a bid to obtain additional loan facilities and provide more shares to pledge.
So expensive
BRAU stocks today skyrocketed 6.25% to Rp510/share, reflecting an annualized price to earning ratio (P/E) of 23.58x by the end of 2010. Berau Coal targets 17 million tons coal production in 2010.
PT Indika Energy Tbk (INDY), which owns 46% stake in coal miner PT Kideco Jaya Agung and 50% stake in coal miner PT Santan Batubara, is traded at Rp3,625 per share, reflecting an annualized 18.25x P/E.
Berau Coal Energy's annualized P/E is more expensive than Indika's valuation.  
Disclosure: No position at the stock mentioned above.

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