Nov 4, 2010

TPG & GSIC to complete due diligence

One of world's largest private equity fund Texas Pacific Group (TPG) teams up Government of Singapore Investment Corporation (GSIC) are soon estimated to complete due diligence on PT Delta Dunia Makmur Tbk (DOID), parent company of Indonesia's second largest coal mining contractor PT Bukit Makmur Mandiri Utama (BUMA).
Several sources close to the deal said TPG and GSIC are conducting due diligence on Delta Dunia. The schedule is expected to complete in mid November.
"TPG & GSIC plan to acquire stakes one level above Northstar Tambang Persada Pte Ltd [NTP] which currently controls 40% stake in Delta Dunia," the sources said.
Nowadays, TPG has controlled about 20%-30% stake at one level above NTP, the remaining belongs to Bakrie Group and Sinarmas Group.
TPG & GSIC are planning to control 100% stake at one level above NTP, in return, they can control 40% stake in Delta Dunia.
Many have asked who is behind NTP. "I think Northstar should address the questions. As long as no clearer picture who is behind NTP, people would consider twice before they buy DOID stocks."
Many foreign fund managers, who participated private placement at Rp1,400/share, were dismay to see that DOID previously announced the rights issue to acquire Berau Coal. In fact, DOID had ceased the proposed rights issue.
TPG & GSIC are estimated to propose acquisition price at a maximum of Rp1,150 per share, 6.5% higher than the current market level at Rp1,080/share.
What is next?
DOID stocks are not going anywhere. The main catalyst for the stock is the acquisition of additional stakes at one level above NTP.
"People know who is TPG and GSIC. When they fully control 40% stake in Delta Dunia, people would see a clearer picture of shareholders," the sources said.
DOID's EPS stood at Rp51.83 as of September 2010 and annualized EPS of Rp61.11 in 2010. Considering the current price at Rp1,080/share, P/E DOID is around 15.63x.
UNTR's EPS was Rp890 as of September 2010 and annualized EPS of Rp1,186.67 in 2010. Considering the current market price at Rp21,950/share, P/E UNTR is 18x, which is more expensive than P/E DOID.
Certainty
The sources said the certainty of acquisition more stakes by TPG & GSIC has become crucial for a consortium of lenders which is currently in talk to provide new syndicated loans worth US$600 million to Delta Dunia or Bukit Makmur.
"DOID and BUMA are in talks with several lenders such as Sumitomo Misui Banking Corporation, Bank Mandiri, Bank of Tokyo, and ING for securing US$600 million loan," the sources said.
DOID is planning to refinance both bank loan and US$ denominated bonds.
According to the sources, lenders might be possible to provide loans to Delta Dunia if TPG and GSIC closed the acquisition deal. "Considering these requirement, the acquisition will be crucial."
Referring to DOID financial statement ended September 30 2010, Delta Dunia, via BUMA, consolidated two major long term loans, so-called SMBC loan facility worth US$253.36 million as of September 2010. The facility charges annual interest rate of 4.5% premium over Libor 3 months and 5% margin.
BUMA has initiated the first payment on March 31 2010 and the facility will mature in 2013.
BUMA, via Prime Dig, also manages US$315 million 5 year guaranteed senior notes issued in November 2009.
Prime Dig has made the first payment of the notes, charging an annual 11.75% and 20% withholding tax or an effective interest rate of 14.1%, which is so expensive, on May 3 2010 and another payment schedule on November 3 2010. As of September 2010, DOID paid Rp65.05 billion notes interest.
In total, Delta Dunia paid Rp408.22 billion loan interest as of September 30 2010, eroding its earning.
If TPG and GSIC could close the deal, Delta Dunia or BUMA would possibly secure the syndicated loan. In return, they can refinance the expensive loan and notes, generating interest saving.

Disclosure: No position at the stock mentioned above.

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