* 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.
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
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
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)