| JAKARTA/HONG KONG
JAKARTA/HONG KONG Glencore (GLEN.L), the world's biggest diversified commodities trader, is nearing a deal to lend $800-$900 million to Indonesia's Bakrie Group to help it refinance debt of $1.35 billion and stave off a potential default, sources said.
In return, Glencore will be given additional marketing rights on coal produced by Bakrie-controlled Bumi Plc BUMIP.L and the loan will be backed by part of the Bakrie Group's 47 percent stake in the coal miner, the sources with knowledge of the deal said on Thursday.
Shares in Bumi Plc BUMIP.L, a London-listed venture between the Bakries and financier Nat Rothschild, rose as much as 6 percent on Thursday. The stock's sharp fall, a drop of 33 percent since the end of June, had triggered the mandatory repayment of the one-year $1.35 billion loan that had been due to mature in March 2012.
Jakarta-listed Bumi Resources (BUMI.JK), Asia's largest thermal coal exporter, jumped as much as 5.8 percent on hopes the two sides were closing in on a deal.
Glencore will have the option of turning the loan into an equity stake in Bumi Plc, which at current prices has a market capitalization of $2 billion, if Bakrie cannot repay the debt, one source said.
The sources declined to be identified because the negotiations are private.
The marketing rights could be extended to other Bakrie non-coal assets, such as zinc and copper from Bumi Resources Minerals (BRMS.JK), another Bakrie-controlled company, one of the sources said.
Several Glencore executives are in Jakarta to help close the deal, which one source familiar with the situation said could be announced as early as Friday.
Glencore has been tipped as a frontrunner since news of the refinancing talks emerged last week, due to its existing relationship with the Bakrie family and coal marketing deals.
But the Bakrie family is also holding talks with other potential backers, including trader Vitol S.A., which since its entry into the coal market in 2005 has been keen to find sizeable, high-quality mines and has already signed long-term offtake deals with Indonesian producers including Bayan Resources (BYAN.JK).
The two trading houses are holding separate talks, two of the sources said, adding Vitol -- whose negotiations are being led by a former senior Glencore coal executive -- was fighting hard to secure the deal even as its rival appeared to close in on the prize.
"From Bumi's perspective it is a positive thing, they have an existing relationship with (Glencore) and I don't see it as a bad thing if Glencore are there supporting (Bumi's) largest shareholder in their time of need," said Richard Knights, analyst at Liberum Capital in London.
"They (Glencore) see the Bakries as a useful business partner going forward and are unlikely to call a loan and take their stake at a bargain basement price... There are a lot of other things the Bakries can do, there are potentially a couple of very large copper assets and if they are developed who is going to get the marketing rights? It doesn't stop at Bumi."
The Bakrie Group is one of largest conglomerates in Indonesia, Southeast Asia's biggest economy, with interests in property, energy, plantation, coal and telecoms.
The family is headed by Aburizal Bakrie, chairman of Indonesia's Golkar Party and who many analysts believe will run for president in elections in 2014.
Glencore has in the past used similar situations to leverage its deep pockets, securing equity stakes or lucrative marketing deals in exchange for financing. A rescue for Katanga Mining in the Democratic Republic of Congo has yielded an internal rate of return of 50 percent.
Indonesia is the world's largest exporter of thermal coal, mainly used in power stations, with demand largely fueled by the rapid expansion of India and China. Output will hit 340-354 million tonnes for 2011, industry groups say.
The one-year loan of $1.35 billion was arranged by Credit Suisse CSGN.VX in March to consolidate Bakrie debts. The mandatory repayment was triggered by a fall in Bumi's London shares to below 850 pence last month.
Credit Suisse arranged the loan with the participation of a handful of hedge funds. Commercial banks, including those in Indonesia, are typically reluctant to lend against shares, which the Bakrie group has used in the past as collateral.
The remaining debt from the Credit Suisse facility could be extended with the existing lenders or refinanced through new loans with other parties, one source said.
The Bakrie group has held discussions on the debt with at least three other parties including Vitol and private equity firm Northstar, which is backed by U.S. buyout firm TPG, two of the sources have said. Noble Group, another rival trader with some ties to the Bakries, is also expected to be circling.
Bakrie and Northstar have declined to comment. Glencore has declined to comment while Vitol has confirmed the talks but said on Wednesday it did not see itself as the frontrunner.
(Additional reporting by Saeed Azhar in SINGAPORE and Clara Ferreira Marques and Jacqueline Cowhig in LONDON; Editing by Neil Chatterjee, Neil Fullick and Erica Billingham)