Bumi near escaping latest default scare

Fri Jun 6, 2014 12:56pm EDT

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* Company gets verbal approval for key CIC agreement

* Consents tied to coupon payment on 2016s

* Convertibles due in August start to be restructured too

By Christopher Langner

SINGAPORE, June 7 (IFR) - Indonesia's influential Bakrie family seems to have won another battle to stave off a full-scale restructuring of coal-miner Bumi Resources.

Bumi CFO Andrew Beckham told investors on Thursday that the company had received all the approvals it needed to complete a crucial debt-to-equity swap with China Investment Corp. Bumi has consistently warned that it would be unable to service its debt without completing the CIC agreement, due by the end of June.

People who listened to the call said Beckham referred to the approval as verbal, but pointed out that signed consents were expected on Friday. He also indicated that the go-ahead was conditional on Bumi's making an overdue US$18m coupon payment on its 12% bonds due on November 10 2016 by the last day of the grace period, on June 10.

Dileep Srivastava, director and company secretary, declined to comment on the specifics when contacted by IFR the following day. He said, however, that some written consents remained outstanding as of Friday morning.

"We have not received all signed consents for the Credit Suisse facility as yet, as was the case last week. This tends to delay closure of the CIC transaction and payment of the 2016 coupon," Srivastava said by email.

Investors and analysts believe Bumi deliberately missed the coupon payment on May 10 on its 12% bonds due in November 2016 in an attempt to convince a small group of holdout creditors to approve the restructuring of the CIC debt. A default on the bonds would almost certainly trigger a full-scale restructuring and scupper the CIC agreement.

Assuming Bumi pays the overdue coupon and receives the remaining written consents in time, those high-stakes tactics look to have paid off.

NEXT CHALLENGE

In October, CIC agreed to convert US$1.3bn of principal on debt, paying an internal rate of return of 19%, into equity stakes in the miner and four subsidiaries - Kaltim Prima Coal, Indocoal Resources, Indocoal Kaltim Resources and Bumi Resources Minerals.

The debt not being exchanged for equity, understood to be around US$400m, including unpaid interest, will be refinanced as a three-year loan at Libor plus 6.7%. Bumi is expected to achieve an annual net interest-cost savings of US$113m, while its total debt will be reduced to US$3.3bn, down about US$1bn, if the transaction closes.

Holders of the US$300m 12% 2016 bonds and the US$700m 10.75% 2017s had already approved the restructuring, but some institutional investors holding the company's secured loans had threatened to derail the deal.

According to investors, funds holding some US$20m of a Credit Suisse-originated facility had been the last to grant their consent.

Once the written consents are given, though, the company will move on to restructuring the US$375m of 9.25% convertible bonds maturing on August 5. Bumi announced last week that it had mandated Deutsche Bank to lead an exchange of those convertible bonds in a bid to extend their maturity. A bondholder meeting is scheduled for June 20.

DEBT AND EQUITY

Portfolio managers following the deal say the company plans to offer the holders of the convertibles a deal that will include separate bond and equity components.

According to two investors, the preliminary discussions point to a solution that will replace one third of the CBs with common equity in the company, with stock issued under a rights offering approved early May.

In a filing with local regulators, Bumi said, then, that its shareholders had approved the issuance of new shares worth Rp6.5trn (US$566m), comprising 26.1bn shares at Rp250 each.

The remaining two thirds of the convertibles are expected to be exchanged for straight bonds maturing after 2017. The bonds would be pari-passu with Bumi's other public debt, eliminating the capital subordination that holders of the convertibles currently face. They would, however, be effectively subordinated to Bumi's outstanding bonds, which are due to mature first.

A filing with local authorities on Friday confirmed the terms would be similar to what investors had heard, with US$125m to be converted into stock.

Restructuring the convertibles, however, may not be so simple. Two portfolio managers told IFR that most of the convertible bonds are now in the hands of credit-focused funds, which may face constraints on the ownership of stock.

Any new stock is also expected to vest after a couple of years, which means creditors may be faced with holding an illiquid equity position for a while.

Given how hard Bumi has driven the bargain with the secured lenders, convertible holders may feel they have little option. (Reporting By Christopher Langner; editing by Steve Garton)

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