Jun 30, 2011

CIC wants Bumi to pay debt in cash

London-listed Vallar , the controlling shareholder of Asia's biggest thermal coal exporter Bumi Resources , said sovereign wealth fund China Investment Corp wanted its US$1.9 billion loan to Bumi to be repaid in cash.
"CIC wants cash, not swap its loan with CB," Vallar's CEO Ari Hudaya as quoted by Reuters.
In a morning note published by Mandiri Sekuritas, it has been clarified that CIC prefers cash payment for its debt. But again there is no clarity yet wether it is for the whole debt of US$1.9 billion or only the 1st tranch of US$600 million that will be repaid in October 2011
At the analyst briefing last week, BUMI mentioned that they will still negotiate with CIC for potential debt swap with the CB. So there still possibilities of debt swap with the CIC for the remaining tranches. There has been a talk in market that CIC was asking about 20% discount for swapping with the CB since the CB was offered out of the money.
Based on our calculation, BUMI will spend around US$785 million this year for early repayment of the 1st tranch with principal repayment of US$600 million (but please note that 12% interest paid monthly, so the cash needed in October 2011 should be around US$715 million which BUMI potentially seek another refinancing for this payment)
This could bring negativity to BUMI’s share in near term since selling directly the CB worth US$2.07 billion with only 2% coupon sounds very challenging. And this will bring questions to BUMI’s current shareholders about the new potentially unfriendly shareholder of 20.6% ownership in Bumi Plc (assuming post Step Up and CB conversion)
There is a trade off between earnings downgrade in BUMI’s income statement vs healthier BUMI’s balance sheet (in line with its deleveraging plan) from the sale of 75% stake in BRMS since BUMI would remove US$238 million of BRMS’s loan carried on BUMI’s balance sheet. 
However, with only 12% stake in BRMS, BUMI’s FY12F net profit is potentially reduced by around US$60 million-US$70 million about (9% – 11% from our previous FY12F forecasts) which we expect this is one of the main reason negative reaction in market that bring selling pressure to BUMI’s share recently.

Disclosure: No position at the stock mentioned above.

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