Aditya Wikrama, Yohanes Obor & Janeman Latul

Indonesia Stock Exchange Examines Bumi Deal With Chinese Sovereign Wealth Fund

The Indonesia Stock Exchange is looking into the $1.9 billion financing deal between PT Bumi Resources, the country’s largest coal producer, and a Chinese sovereign wealth fund that would require the Bakrie group company to ultimately pay 19 percent interest at maturity, an exchange director said on Thursday.

Eddy Sugito, a director of the exchange, known as the IDX, said the bourse was seeking an explanation of the phrase “debt-like instruments,” which was how Bumi described the nature of the investment being purchased by China Investment Corp., the sovereign wealth fund.

Eddy said the IDX would analyze Bumi’s disclosure to the exchange, as well as media reports on the deal, before deciding whether to request further explanations from Bumi.

Bumi president director Ari S Hudaya on Wednesday announced that CIC would invest $1.9 billion in “debt-like instruments” offered by Bumi and that the money would be used to restructure Bumi’s debts and finance capital expenditure.

Ari said $600 million was repayable in four years, $600 million in five years and the remaining $700 million in six years. The investment attracts a 12 percent annual cash coupon, with a total internal rate of return of 19 percent, with the balance payable at the time of final maturities.

Ari Pitojo, an equity analyst at PT Mandiri Sekuritas, said the market needed an explanation from Bumi about the nature of the “debt-like instruments” and the high internal rate of return.

Dileep Srivastava, Bumi’s vice president for investor relations, told the Jakarta Globe that there was no reason for the market to worry about the 19 percent rate on the debt.

“[This deal] has huge potential because we have common interests, and it’s the first big investment by CIC in Indonesia,” Dileep said. He would not elaborate on “debt-like instruments,” but he hinted that Bumi’s assets could be offered as collateral to CIC.

“I can’t disclose the details yet as I am bound by the confidentiality agreement,” he said. “All I can say is that the security packages that are being required will be the same as earlier packages [offered to creditors].

“If you want to buy a new house, and you don’t have money, what do you use to get a loan?”

Pardomuan Sihombing, the head of research at PT Paramitra Alfa Sekuritas, said on Thursday that the 12 percent annual interest rate was relatively cheap.

“When compared to Indonesian government dollar bonds, which have an 11 percent annual interest rate, the 1 percent premium for a corporate loan is very cheap,” Pardomuan said.

He said Bumi’s ability to maintain sufficient cash flow and repay the debt would depend on its earnings growth, which could be threatened by a plunge in global coal prices.

“If Bumi’s earnings growth remains stable at near its current growth rate, I think they would have no trouble repaying the debts. But there would be trouble if coal prices slump again in later years,” Pardomuan said.

Bumi posted earnings of $125 million in the first quarter of this year. It has not yet released second-quarter earnings, nor has it issued any earnings forecast for this year.

The company’s total debt, including short-term debt, stood at $3.4 billion in the first quarter, compared to assets of $5.5 billion.

Pardomuan said he thought commodity prices, particularly energy prices, would remain cheap prior to a full global economic recovery.

He added that information available on the Bumi-CIC deal was incomplete, and he expected Bumi to make further public disclosures about it soon.

In June, Bumi won shareholder approval to pledge the assets of two coal miners, PT Kaltim Prima Coal and PT Arutmin Indonesia, and one noncoal miner, Australian-based Herald Resources, for more loans, the amount of which the company did not disclose at the time.

Bumi’s shares have more than tripled in price this year, making it the best-performing stock in the 19-stock MSCI Indonesia Index.

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