PT Bumi Resources, Indonesia’s biggest exporter of thermal coal, is seeking to raise cash by selling a unit and issuing shares after the start of a corporate governance probe prompted concern it may struggle to repay debt.
The company, an affiliate of Bumi Plc, founded by Nathaniel Rothschild, is considering a sale of PT Fajar Bumi Sakti, Corporate Secretary Dileep Srivastava said yesterday at a Jakarta briefing where President Director Ari Hudaya said it may also sell stock. The nation’s bourse had requested that the company hold a public presentation on its finances after Bumi Plc initiated the probe.
The Indonesian coal company has faced pressure to reassure investors since Sept. 24, when Bumi Plc began the investigation into “potential financial and other irregularities” at Bumi Resources and hired lawyers to examine a $637 million writedown of development funds and exploration assets. Moody’s Investors Service changed its outlook on Bumi Resources to negative the next day and Standard & Poor’s cut its long-term rating.
Asset sales were “always part of the plan, but I think now it’s being accelerated because of the issue at the Bumi Plc level,” said Riaz Hyder, a Jakarta-based analyst at Macquarie Group Ltd. who reduced his rating on the stock to neutral from outperform last week. “If they actually move ahead on asset sales, that would be positive.”
Bumi Resources is 29 percent held by London-traded Bumi Plc and has $3.95 billion of debt, with $300 million due in the next year, according to Moody’s. S&P put the figure at $400 million.
Bumi Resources fell 4.2 percent to 680 rupiah at the close of trading in Jakarta. The stock has plunged 69 percent this year, compared with an 11 percent gain for the benchmark Jakarta Composite Index. PT Berau Coal Energy, a Bumi-controlled company that’s also subject to the probe, dropped 7.9 percent to 152 rupiah.
The investigation will focus on “extensive” development funds at Bumi Resources and an asset at Berau Coal, which were marked down to zero in the accounts of Bumi Plc as of Dec. 31, according to the holding company, which gave no figures for the writedown in its Sept. 24 statement.
Bumi Resources is still unclear about Bumi Plc’s statement and has always abided by Indonesian rules, Srivastava said at the briefing.
Berau Coal hasn’t been informed by Bumi Plc nor involved in its investigation, Berau President Director Rosan P. Roeslani said at a separate press conference in Jakarta yesterday.
Roeslani said the investigation wouldn’t affect the company’s performance and that it doesn’t plan to make early debt repayments. The company said its total debt outstanding is about $950 million. Roeslani said its cash reserves stand at $512 million.
The probe is the latest episode in a dispute involving Rothschild and Indonesia’s Bakrie family since they agreed to a $3 billion deal in 2010 that gave Bumi Plc stakes in the two coal producers. Relations between Rothschild and Bumi Co-Chairman Indra Bakrie soured last year after the U.K.-based financier made public a letter to then-Chief Executive Officer Hudaya urging a “radical cleaning up” of Bumi Resources.
Bumi Plc fell as much as 4.3 percent to 152.60 pence and traded at 153.10 pence as of 10:49 a.m. in London. A spokesman for Bumi Plc declined to comment on the plans of its affiliate.
Bumi Resources is “looking into a possible non-preemptive issue without rights to strengthen capital structure as permitted under regulation,” Srivastava said in an e-mailed statement today. A rights offer is “not on the table but merely a far term option available to us.”
A non-preemptive rights offer excludes the right of existing shareholders to buy a company’s new shares, according to Indonesia’s capital market regulation. Companies may sell new shares amounting to as much as 10 percent of their capital through a non-preemptive rights offer, according to the rules.
“There’s a probability that a new investor will enter Bumi,” Lanang Trihardian, an analyst at PT Syailendra Capital said by telephone in Jakarta today. “A non-preemptive rights offer is one of the options Bumi may take to reduce their debt but given the size of the debt it’s not enough.”
Bumi Resources said Sept. 26 it hadn’t received any advance notice of the investigation or of Bumi Plc’s announcement. Srivastava subsequently said the probe and “leaks” on the matter were an attempt to damage the company.
“The present situation is unfortunate and is an internal issue between a few shareholders who have chosen to go external, managing media through innuendo,” Srivastava said in a Sept. 27 statement. “This appears to be an attempt to damage the inherent value of our business by orchestrating internal issues and leaking them publicly, for motives which appear dubious.”
The Indonesian capital markets regulator has said it will wait for the results of Bumi Plc’s probe before taking any action. Indonesia’s stock exchange sent letters to Bumi Resources and Berau on Sept. 27 asking them to provide details of the matter to shareholders, according to Uriep Budhi Prasetyo, a compliance director at the bourse.