Besides exploring to swap US$600 million of debt to Chinese sovereign wealth fund China Investment Corporation (CIC) with shares, Indonesia's largest thermal coal exporter PT Bumi Resources Tbk (BUMI) is considering to sell some stake in non-coal miner PT Bumi Resources Minerals Tbk (BRMS).
In worst case scenario, Bumi Resources will pay back the debt earlier than schedule in 2013, meaning another fee of US$30 million will be charged to the company.
Bumi Director Kenneth Patrick Farrell said the options are to settle the debt in cash or swap it with shares of Bumi Resources, Vallar Plc, which has been renamed into Bumi Plc.
A source close to the deal said Bumi Resources is also exploring a possibility to sell 50%-60% shareholding in BRMS to Vallar, dragging down the shareholding to 38%-28%.
However, talks to explore the options are still underway. There is no certain decision has been made by Bumi and CIC.
Still, massive publications on how Bumi to settle the debt to CIC early so far is one side, which is Bumi side. What is inside the head of CIC? Is it easy to swap the debt with shares?
A better strategy should be taken by Bumi is to seek US$600 million plus fee and interest if it wants to pay early the debt in October 2011.
CIC debt settlement with shares swap may be possible because Bumi and CIC have agreed on preferred partnership which was effective in 2009. Under the agreement, Bumi has agreed to invite CIC as its preferred partner to participate in business opportunities Bumi Resources and its subsidiaries may undertake during the term of Bumi-CIC loan.
It has been nearly 2 years since the agreement was signed. But, there is no sign from CIC to realize partnership both in Bumi itself and subsidiaries.
Market was surprised when there was no participation from CIC in Bumi Minerals IPO. What is wrong with the partnership agreement? Despite the absence of shares participation sign from CIC, is it easy for Bumi to swap the CIC debt into shares? If it is not, Vallar may seek another debt issuance to buy BRMS as Bumi needs a cash to settle CIC debt. Please login or register to read the remaining story on Vallar and step-up transaction.
Disclosure: No position at the stock mentioned above.
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