So, the billionaire Bakrie Brothers have sorted one of their debt issues.
They have struck a deal to sell half of their stake in Nat Rothschild’s cash shell curiosity, Bumi Plc, to an Indonesian businessman.
Bakrie Group press release:
Bakrie Group has embarked on a long term and strategic partnership with PT Borneo Lumbung Energi & Metal Tbk (“BORN”) with the signing of a Sales and Purchase Agreement (“SPA”) which took place in Jakarta on 31 October 2011.
Under the terms of the SPA and upon completion of the transaction, Bakrie Group and BORN via jointly and equally owned investment vehicles will hold indirectly 47.6% shareholding in London listed Bumi Plc. It is expected that the transaction will conclude by the end of December 2011.
The transaction is valued at US$1 billion which values Bumi Plc’s shares at approximately 1091pence each, representing a premium of approximately 46% to the closing price of Bumi Plc’s shares on the LSE on 31st October 2011.
The proceeds will be used to help pay off a $1.3bn loan, which readers may remember was called in early last month after a margin call. (The Bakries will still owe Credit Suisse and several hedge funds between $350m and $400m).
But what about PT Borneo Lumbung Energi & Metal Tbk. Who or what are they?
Well, PT Borneo is a coal company backed by another Indonesian billionaire businessman called Samin Tan. Tan, a former partner at accounting firm Deloitte and owner of Indonesian investment bank Renaissance Capital, has tried to strike a deal with the Barkies before, according to Reuters.
The deal was sealed after Glencore (GLEN.L), the world’s largest diversified commodity trader, dropped out of talks on refinancing the Bakrie loan.
It also marks the second time Tan, a former partner at accounting firm Deloitte, has negotiated to buy a stake in Bumi, having failed to strike a bold deal in 2006.
…
Tan, an ethnic Chinese Indonesian from the small city of Bengkalis in central Sumatra, has previously played down any direct connection with the powerful Bakrie family. In a 2006 interview with Reuters, he said he was a “simple, homegrown financial professional” and added that Renaissance was independent of Bakrie.
Which all sounds somewhat cosy and might go some way to explaining why Tan was prepared to pay a hefty premium to a distressed seller. (Note, PT Borneo shares dropped 15.5 per cent after the deal was announced).
That said, Bumi shareholders won’t be complaining. The company has managed to avoid borrowing money from Glencore, who it’s reported were pushing for additional marketing rights over Bumi’s coal in exchange for a $800m-$900m loan.
And effectively there hasn’t been any change in the share register, notes Liberum Capital.
The transaction will not split Bumi’s register since Bakrie and PT Borneo will own 47.8% via their “jointly and equally owned investment vehicles” therefore Bumi will still have a single blocking shareholder, but it does reduce the influence of a single family group. This deal also confirms speculation over recent days that Glencore (BUY) had missed out or walked away from acquiring a stake in Bumi, which could have been a coup for Glencore.
But not for Bumi or its shareholders, one suspects.
Update: 4.28pm (London time)
Minority shareholders in Borneo may well be complain about this deal. Analysts can’t find a good word to say about it.
Nomura:
We don’t think this transaction is positive for BORN because 1) BORN gearing would go up from 1% to 86% on our estimate, 2) as the balance sheet becomes stretched, we are concerned on the funding for development of the Telakon block, and 3) we don’t expect any significant cash flow from Bumi plc to justify the investment.
Merrill Lynch:
Likely due to the association with the Bakrie group, we would not be surprised should investors start assigning a Bakrie discount to BORN. Coupled that macro uncertainty and headwind in steel/iron ore/coking coal price, we find it difficult to see share price recovering in the near-term. But BORN’s share price has fallen 13% post this announcement and the share price implies 22% upside. Hence, we cut our rating for BORN IJ from Buy to Neutral.
Transaction price 46% higher than market price
BORN IJ will fund this acquisition with a US$1bn five-year loan facility fully funded by Standard Chartered Bank, we understand at LIBOR+3.5%. We understand the loan will be guaranteed by BORN’s 2 subsidiaries, BORN’s cash flow, and BUMI LN stakes. This deal still puts the debt-coverage ratio at 6x but its net debt-toequity will jump to 1x. We expect BORN IJ to generate US$320mn EBITDA in 2012, at US$200/t coal price. But if the coal price falls to US$150/t (instead of US$200/t), its EBITDA will fall to US$170mn & put the debt-coverage ratio at 3x.
Related links:
Bumi and the Bakries – FT Alphaville