Apr 10, 2011

Bumi, not cheap to early redeem debt

Indonesia's largest thermal coal exporter PT Bumi Resources Tbk (BUMI) several times has announced its intention to pay US$1 billion debts this year. In line with the plan, the company aims to reduce its debt ratio to less than 1.5x this year and 1x next year.
The company is keen to make early payments of US$600 million debt to China Investment Corporation and US$366.57 million guaranteed of convertible bonds II. Is is cheap to pay the debts earlier?
Check at Vallar Plc prospectus, Bumi has an option to early redeem the loan facility to CIC at various dates by paying a maximum early redemption fee of 5%.
Referring to the payment schedule, US$600 million debt to CIC will mature in October 2013, US$600 million will due in October 2014, and US$700 million will mature in October 2015. For the payment in October 2013, Bumi could make early redemption in October 2011 by paying a 5% fee or US$30 million or Rp261 billion. Bumi could pay additional fees of 5% respectively if the company was making early redemption on US$600 million and US$700 million debt in October 2012 and October 2013.    
Bumi would make early redemption on the all debts, the fee of US$90 million or Rp783 billion should be paid to CIC. 
Cash flow  
It seems Bumi requires additional financing if the company aims to pay US$1 billion debt this year. It is true that Bumi recorded a step jump in cash and cash equivalents at end of last year. The company's cash equivalent reached US$253.41 million last year from US$60.06 million in the previous year.
Cash flow from operating business increased to US$310.73 million from US$246.04 million. The company obtained US$126 million dividends from subsidiaries and US$10 million from withdrawal of short term investments. 
The company also obtained US$833.95 million net proceed of loan facilities and US$360 million from non-preemptive rights issuance. So, without additional financing, do you think Bumi has adequate internally generating cash flow to make early redemption?
 Disclosure: No position at the stock mentioned above.

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