Bumi Resources Debt Refinance at Risk as S&P Follows Moody’s

Bumi Resources Debt Refinancing Seen Threatened Amid Claims
Pedestrians walk past Bakrie Tower, which houses the PT Bumi Resources headquarters, in Jakarta. Photographer: Dimas Ardian/Bloomberg

PT Bumi Resources, the Indonesian coal producer at the heart of a London probe amid claims of irregularities, may struggle to refinance debt in the next year, Standard & Poor’s and Moody’s Investors Service said.

S&P today cut its long-term rating on Bumi Resources by one step to B+ from BB-, it said in a statement. Moody’s changed the outlook on the company to negative from stable yesterday.

Bumi Plc, the London-listed 29 percent-shareholder in Bumi Resources, on Sept. 24 said it had commissioned an urgent probe into “potential financial and other irregularities” at its Indonesian operations, especially the Jakarta-based coal miner.

“The investigation could weaken Bumi Resources’ access to the capital markets and test its ability to refinance its short-term debt,” S&P said. It also lowered the issue rating on the company’s guaranteed senior secured notes and placed both ratings on Credit Watch with negative implications.

Bumi Plc, the London-listed venture founded by Nathaniel Rothschild, has hired lawyers to probe the writedown of as much as $637 million of so-called development funds and exploration assets. Bumi Resources has debt of $3.95 billion, $300 million of which falls due in the next 12 months, according to Moody’s. S&P put that figure at $400 million.

“We don’t believe that there are any issues with regard to the settlement of debt or other things,” Dileep Srivastava, director at Bumi Resources, said by phone. “Our concentration is on getting our operations right, increasing our production to 100 million tons, trying to cut costs, to monetize our non-core assets, get down to settling debt, get down to reducing interest charges.”

No Notice

Bumi Resources received no advance notice of Bumi Plc’s probe or the press release, it said today in an e-mailed statement. The company said it’s in contact with Indonesia’s capital markets regulator and the stock exchange and “will be acting to resolve these matters as expeditiously as possible.”

Bumi Resources shares fell 4.4 percent to 660 rupiah at 3:39 p.m. in Jakarta. The shares have declined 70 percent this year, hurt by falling coal prices and concerns it may struggle to pay debt. Bumi Resources owes $1.3 billion to China Investment Corp.

In London, Bumi Plc fell as much as 11 percent to 149 pence and traded 8.6 percent lower as of 12:35 p.m. The stock dropped 25 percent on Sept. 24 to the lowest on record.

Slower Growth

Bumi Resources’ $700 million of bonds due October 2017 have slumped 19.5 cents this week to 74 cents on the dollar as of 4:35 p.m. in Hong Kong, according to BNP Paribas SA prices. The company sold the bonds in September 2010 to yield 10.75 percent, according to data compiled by Bloomberg. The notes yield 19 percent, up from 12.5 percent on Sept. 21, BNP prices show.

“The investigation comes at a time of slower production growth over the next 12 months than we earlier expected and continued subdued coal prices that further constrain the company’s cash flows and weaken its debt-servicing ability and credit ratios,” S&P said.

Moody’s negative outlook reflects concerns that “the lingering corporate governance issues at Bumi Resources will impact its ability to refinance its scheduled loan maturities of over $300 million in 2013,” Simon Wong, a vice president at the ratings company, said in a statement yesterday.

The allegations at the center of the probe pit Rothschild, 41, against Indonesia’s Bakrie family, the part-owners of Bumi Resources, which includes billionaire Aburizal Bakrie, the 2014 presidential candidate for the nation’s second-biggest party. Indonesia’s capital markets regulator said it has no grounds to investigate Bumi Resources.

Different Standards

“We have spoken to Bumi Resources for clarification on the news developments,” Anis Baridwan, a head of corporate financial assessment at Indonesia’s Capital Market and Financial Institution Supervisory Agency, or Bapepam-LK, said by phone in Jakarta. “We don’t have any reason” to investigate the company and have had no contact with Bumi Plc yet, he said.

The controversy over the writedown is possibly a matter of differing accounting treatments “under two accounting standards in different countries,” Srivastava said.

Macfarlanes LLP, a London-based lawfirm, has been appointed to handle the independent probe, which is likely to take weeks, another person familiar with the investigation said. An official at the firm declined to comment yesterday.

The Bumi Plc board is considering a split from Bumi Resources to revive investor confidence, the Financial Times reported, without saying how it obtained the information.

Stock Downgrade

Bumi Plc was downgraded to underweight from overweight by JPMorgan Chase & Co. equity analyst Fraser Jamieson with a 15-month target price of 100 pence a share.

The investigation is the latest turn in an acrimonious partnership that began with a $3 billion deal in 2010 that married the centuries-old British banking dynasty with a family-owned palm oil-to-property-empire started in Sumatra in 1942.

“We haven’t seen what these allegations are,” said Kenneth Allan, a director at Borneo Lumbung Energi, which owns 30 percent of Bumi Plc. “It’s just a broad brush in the press release that said there were some allegations of some impropriety.”

The Indonesia stock exchange sent a letter to Bumi Resources on Sept. 24 asking management to explain this case and expects a response this week, Uriep Budhi Prasetyo, compliance director at the exchange, said in a text message.

Napoleonic France

The probe comes almost 11 months after Rothschild, whose ancestor helped bankroll Britain’s war against Napoleonic France, made public a letter to then-Bumi Plc CEO Hudaya calling for a “radical cleaning up” of the company and a timetable for the “repatriation of funds deposited with connected parties.”

The Nov. 8 letter cited $394 million of business development funds under non-current assets on the balance sheet of Bumi Resources as of June 20, 2011.

The probe will focus on “extensive” development funds at Bumi Resources and an asset in PT Berau Coal Energy, which were marked down to zero in the accounts of Bumi Plc as of Dec. 31, the company said. It gave no figures for the writedown.

According to its 2011 annual report published in April, Bumi Plc wrote down the value of exploration assets by $390 million to zero. It also cut the value of business development funds by $247 million.

PT Bakrie & Brothers -- controlled by Aburizal Bakrie, who is the brother of Bumi Plc Co-Chairman Indra Bakrie -- sold half of their 47.6 percent stake in Bumi Plc in November to help pay $1.35 billion in debts owed to Credit Suisse Group AG. Aburizal is the chairman of the Golkar Party of Indonesia, which was founded by former dictator Suharto.

Bumi CEO Nalin Rathod said in a May interview that the company was in talks to repay debt owed to CIC early as part of a wider plan to reduce financing costs.

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