May 31, 2012

Adaro buys majority stake in affiliated Bhakti Energi

PT Adaro Energy Tbk entered into an option to provide a convertible loan of up to US$500 million for a period of 3 years (referred to below as Option One), to acquire a controlling interest  in an affiliated coal miner PT Bhakti Energi Persada (BEP) and an option, to acquire the majority shares from the controlling shareholders of BEP (referred to below as Option Two, and, together with Option One are referred to as Options or Option Agreements).
Adaro Energy will have full control of the management, operations and all the funding of BEP from the date of
the signing of the Options. 
“We are delighted with the BEP Options we have signed.  We feel BEP has excellent potential to help us achieve our
main goal of generating substantial sustainable long-term value from Indonesian coal," said President Director Garibaldi Thohir at Adaro in a press statement yesterday filed to Indonesia Stock Exchange. 
Adaro also worked for 2 years to negotiate a deal that is structured in a unique way to minimize risk to Adaro.  
"While we are excited with the BEP opportunity, we must
also emphasize that we will  use our best judgment before injecting any funds to develop the asset.”   
Key success factors such as market readiness, receiving required permits from the government, land availability, social  and community support, and completing
engineering and geological studies must first be in place before any large capital expenditures will be deployed.  “Our investors should not have the perception that once the Options are signed, we will immediately deploy capital to fund BEP. We are entering into these Options to properly assess an opportunity, while minimizing the
risk to Adaro’s capital.  We want to  ensure both the acquisition risks and the execution risks are addressed well in advance.” 
BEP, which was established in 2002, owns seven low grade thermal coal licenses in the District of Muara Wahau, East Kutai  Regency, East Kalimantan. BEP also owns two transport businesses in East Kalimantan, which own the hauling road that will be used to transport BEP’s coal to the seashore. The seven concessions form one very large contiguous thermal coal deposit. 
SRK Consulting (Australasia) Pty Ltd (“SRK”) estimated BEP’s concessions  to have JORC compliant total resources of 9.53 billion tonnes.  
In 2010, Adaro Energy hired Marston, an international mining consultant firm out of St Louis Missouri, USA, to conduct a mining and development study, which verified certain technical assumptions used by SRK in their 2008 and 2009 JORC resource reports. Marston’s estimate of insitu coal tonnages was essentially the same as the SRK estimate as the difference was within acceptable limits. 
Option One provides Adaro the option to lend up to US$500 million to acquire 51% equity in BEP over a period
of 3 years. 
Adaro can make a decision to convert the loan into equity at the end of the 3 year period. Option two also has a 3 year maturity and was signed with PT Persada Capital Investama (PCI), PT Triputra Investindo Arya (TIA), and the
descendants of the late Mr. Winarto. PCI and TIA each have a 30.787% stake in BEP and combined with the 18.216% Winarto family stake, own 79.8% of the equity of BEP.  
Option two provides Adaro a right to acquire shares held by the controlling shareholders of BEP (together holding 79.8% shares in BEP) in exchange for 2,381.7 million shares of Adaro Energy. Both Options are only options for Adaro and not its obligations. 
PCI and TIA are owned by two of Adaro Energy’s five key shareholders such as Benny Subianto and Teddy Rachmat.  Adaro Energy is 63% held by five key shareholders and no single shareholder has a controlling interest of Adaro Energy.  
In June 2011, in an unrelated transaction, Adaro Energy acquired 10.22% of BEP for US$66 million from third party minority holders.   

Disclosure: No position at the stock mentioned above.

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