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Senin, 13 Juni 2011

Note Bumi Resources (BUMI IJ) - CLSA

Nick Cashmore has just written a note Bumi Resources (BUMI IJ). BUMI has announced a corporate restructuring that will potentially cut debt and boost profits. With production uplift on track Bumi is also well placed to benefit from the coal super cycle. Nick has a BUY rating on the stock with TP of Rp4,000.

Bumi has announced that is will divest 75% of its 87% stake in Bumi Minerals (BRMS IJ) to Vallar (VAA LN), receiving US$2.07bn in convertible notes due 1Q17 with a 2% coupon and GBP15.88 initial conversion price or 32% premium over VAA closing price last Friday. Bumi Minerals (BRMS IJ) is a holding company with an 18% effective stake in Newmont Nusa Tenggara as well as holdings in various gold, zinc, diamonds and oil greenfield interests.

Sales comment:

Accounting-wise, selling BRMS to Vallar should result in one time decent size paper profit for BUMI Resources. However, to understand whether the whole deal is commercially attractive for BUMI Resources, I guess the key here is to value the CB that BUMI Resources is receiving for divesting 75% stake in BRMS to Vallar.

The UK companies Act prohibits a subsidiary from owning shares in its parent. BUMI Resources will have to monetize the CB since the convertibility right worth less to BUMI Resources.

This whole announcement is a precursor to a subsequent sale of the CB to eventually support repayment of the US$1.9bn debt to CIC. This will enable CIC in turn to convert its interest into an equity stake in Vallar. While this seems to be a move in the right direction, the ultimate question is whether CIC will eventually swap the very lucrative 19% bond with equity in Vallar. There is no cash changing hand so far.

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