Update on Bumi VAA Transaction - BUY - CLSA

This is where the Bumi-Vallar transaction stands today. Please see comments by Nick Cashmore:

* On March 4, VAA LN has received 5.19bn shares in BUMI IJ from BNBR and Long Haul, an entity owned by the Bakrie Group. This is equal to 25% of total shares outstanding in BUMI.

* In return, VAA LN issued 90m shares to these two companies

* On April 8, Bukit Mutiara is expected to transfer title and ownership of 26.1m shares in BERAU IJ to VAA, which will issue 52.3m shares in return of which 27.8m shares will be issued to Bank Mutiara and 24.5m shares to Long Haul. This will give VAA 75% economic and voting control of BRAU.

* Thus by April 8, the Bakrie Group will hold a 55% economic interest and 30% voting stake in VAA while Bank Mutiara will own an additional 20% of VAA's voting share capital.

* Upon completion of the transfer of ownership in BRAU to VAA there will also be a TO to minorities.

* VAA has also said it is in talks with the Bakrie Group to acquire up to a 51% majority control in BUMI IJ. This transaction is to be complete before end June and would make BUMI an accounting subsidiary of VAA as opposed to an affiliate, as it currently stands. This could be achieved via a partial share swap in BRAU or other assets. At today's price for BUMI this implies the transaction is valued at US$1.9bn.

Our investment thesis is one of balance sheet deleveraging and upstreaming cashflow to shareholders through dividends. BUMI itself should produce some 65m tonnes of thermal coal this year, rising to 100m tonnes by 2015. On consensus the stock trades at 15x 2011 and 11x 2012 earnings.

Our fair value of Rp4,000 implies 22% upside but there is further leverage to this should the group repay US$1.8bn in CIC debt, of which the first tranche of US$700m falls due this August. On our forecasts, net debt to equity will drop to 55% by 2012 from 128% last year.