Event
· Bumi has announced that it is raising a US$300m convertible bond at a
5% coupon and 30% conversion premium. The conversion premium is based on the
average 3-day trading price from 20 November 2009.
Impact
· Relatively cheap finance. We are surprised at the low cost of the
convertible bond of 5%, particularly in light of recent 'debt-like'
transactions with CIC for 19%, and even their recent convertible bond which was
issued at 9.75%.
· History shows that locals could ramp the share price following a
convertible bond, particularly given that the conversion premium is based on
the average 3-day trading price from 20 November, 2009.
· Acquistions, acquistions, acquisitions! We see the potential
for three acquisitions as a result of the almost continuous debt raising.
· Newmont gold and copper concession - owned by Newmont/Sumitomo where
the company could acquire up to 24% valued at roughly US$950m under the
foreigner selldown clause of the contract of work agreement. A further 7% stake
is available next year, which combined with another local partner who owns 20%,
would mean that Bakrie/local party could take 51% control of the asset. We
understand that this is most likely to be undertaken via a Bakrie-related
entity called Multicapital, which Bumi has recently disclosed that it owns 99%.
If Bakrie was to lend Mulitcapital the money, such that it could undertake the
transaction, this may not be considered a material transaction (as it could
just be an intercompany loan in the ordinary course of business). Therefore an
EGM may not be required. Press reports suggest a 75%/25% Bumi/local government
consortium for the 24% stake, but it is uncertain as to whether the local
government will receive a
free carry. Finally, it is unclear as to whether Bumi will be able to equity
account for this investment, or whether it would be considered associate income
and just record the dividend payment.
