UPDATE 1-Indonesia's Bumi confident CIC deal will go through, ups coal target

Wed Nov 20, 2013 7:53am EST

* Bumi says deal with CIC will cut interest costs by $216 mln

* Analysts sees risk from shareholder vote at London-listed Bumi Plc

* Raises coal output target this year by nearly 4 pct

By Fathiya Dahrul and Eveline Danubrata

JAKARTA, Nov 20 (Reuters) - Indonesia's Bumi Resources , Asia's top thermal coal exporter, is confident shareholders will approve a $1.3 billion debt-for-equity swap deal with China sovereign wealth fund CIC, which it said will cut interest costs by $216 million.

Bumi Resources' bullishness on the transaction going through comes as some analysts sense a risk to the deal, given that key London-listed shareholder Bumi Plc is facing its own serious test in a shareholder vote on a restructuring proposal.

A collapse of the Chinese deal will be disastrous for the Indonesian company, which has suffered downgrades from ratings agencies this year and faces bloated debt even as coal prices remain soft. It will be a setback for CIC and could risk recovery of its investment.

"We are very confident that this CIC deal will go through," Dileep Srivastava, a director at Bumi Resources, told Reuters on the sidelines of a news briefing on Wednesday.

CIC agreed last month to convert the $1.3 billion owed to it by Bumi Resources into a stake in the coal miner and associated subsidiaries. Bumi Resources is controlled by the politically connected Bakrie family.

Some analysts say the CIC deal could still be complicated by the outcome of a December vote at Bumi Plc on the London-listed company's planned split with the Bakrie family. Bumi Plc owns 29.2 percent of Bumi Resources.

Under the plan, the Bakries will sell their stake in Bumi Plc to their current partner and outgoing chairman Samin Tan. The Bakries will then buy back Bumi Plc's 29.2 percent stake in Bumi Resources for $501 million, above the current market price.

But Bumi Plc has raised concerns about whether the deal can get financed by the Bakries. The family has brushed off concerns over cash.

"There is a big risk that the (CIC) deal will not be approved by shareholders," said an analyst at an Indonesian brokerage, adding that institutional shareholders could determine the outcome. The analyst did not want to be quoted because of the sensitivity of the issue.

Andrew Beckham, a director at Bumi Resources, told reporters the deal with CIC is expected to be completed next month if approved by shareholders.


Bumi Resources expects output of 80 million tonnes this year, nearly 4 percent higher than its earlier target of 77 million tonnes, Beckham told reporters.

The biggest thermal coal exporter in Asia projects coal output of at least 110 million tonnes in 2015, according to a filing to the Indonesian stock exchange. It produced 74 million tonnes last year.

"Indonesian coal miners have been raising their production to make up for a fall in coal prices. But bear in mind that cost of goods sold will still be high," said Arandi Nugraha, a coal analyst at Batavia Prosperindo Sekuritas, on Wednesday.

"Therefore even though production is increasing, this doesn't mean that net profit will rise too," he said.

Coal production in Southeast Asia's biggest economy is expected to increase by 5 percent to between 410-420 million tonnes in 2014, but could go higher, a leading industry association said last month.

In recent days, Bumi Resources bonds have edged higher on expectations that its lenders who had a put option exercisable in November on a $150 million loan would not exercise this right. The 2017 recovered to 67/68.5 from 65/66 on that expectation.

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