Bumi hostage to coal prices for survival despite CIC debt swap
HONG KONG Oct 11 (Reuters) - Bumi Resources' looming debt payments and weak coal prices are spooking bondholders even after the Indonesian miner dodged a default by converting more than $1 billion of debt into equity, with a ratings cut by Moody's not helping sentiment.
China Investment Corp's (CIC) agreement to swap its loans to Bumi in return for stakes in its group companies takes away the spectre of repayment of two loan tranches aggregating $1.3 billion falling due in 2014 and 2015. It could even lead to easier access to funding from Chinese banks on the basis of the sovereign wealth fund's backing.
But Asia's biggest exporter of coal used in power stations faces a total of more than $800 million of refinancing obligations over the next 12 months, according to Moody's. The debt payments come at a time when coal prices are languishing at multi-year lows, pressuring cash flows.
"It is still a leveraged company, debt refinancing is a concern, and it is a price-taker being dependant on coal prices," said a Hong Kong-based fund manager who owns these bonds. "Bond holders are getting compensated, but it is debatable whether it is enough."
A $150 million loan from Credit Suisse begins to amortise shortly, according to IFR, a Thomson Reuters publication. A $425 million refinancing made in September is due in December, and it has a $375 million convertible bond maturing in August 2014 .
Bumi did not respond to emails seeking details of these maturities and the possibility of financing lines from Chinese banks.
After the surprise announcement on Bumi's pact with CIC on Wednesday, the miner's bonds due 2017 rallied by 5 points to 70/72. Equity investors were equally upbeat, focusing on the interest savings.
A day later, Moody's cut Bumi's rating by a notch to Ca - which is considered near default - blaming its mountain of debts.
"The rating action reflects the high probability of near-term default for the thermal-coal producer given its substantial upcoming debt maturities," the agency said. The deal with CIC "will be viewed as a distressed exchange under Moody's definition of default."
The ratings agency's cautious tone is spooking some investors.
"This would keep some of the real money guys more concerned than expected. They are looking at exit levels," said an analyst at an investment management company which does not own the bonds.
"If CIC can push the Chinese banks to help with the refinancing, that could be a catalyst," he said.
Bumi's 2017 bonds were off their initial highs on Friday, trading at levels that are considered stressed.
The miner remains pressured by feeble coal prices, with Australia's Newcastle spot index hovering just above the near four-year lows set in August. (Reporting by Umesh Desai; Editing by Ryan Woo)
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