PT Bumi Resources sweetened the terms of a $375 million bond-exchange offer a second time in a bid to avoid default.
Asia’s most indebted coal-mining company sent a letter to bondholders Aug. 7 seeking to extend the notes’ maturity to April 2018, and lower the coupon to 6 percent from 9.25 percent, according to the document, a copy of which was obtained by Bloomberg News. The debt was originally due Aug. 5, and Bumi has a grace period which expires tomorrow.
While Jakarta-based Bumi expects to pay the interest on the convertible bonds Aug. 12, it will be unable to repay the notes’ $374.9 million of principal, according to the letter. It’s asking bondholders to refrain from having the company declared in default to allow it time to seek some sort of restructuring or resolution.
“If bondholders don’t get their money back by tomorrow morning, that would likely be a technical default,” said Xavier Jean, a credit analyst in Singapore at Standard & Poor’s. “There’s an incentive for bondholders to negotiate because their bargaining power isn’t as strong as a secured creditor, especially given there’s a significant amount of indebtedness coming onstream and the company isn’t generating sufficient cash flow.”
As well as extending the bonds’ maturity and changing the coupon, Bumi is asking noteholders to amend the conversion price to 250 rupiah ($0.02) per share from an original 3,366.9 rupiah, according to the letter. The new notes would be convertible from September 2015.
Bondholders have until 11:59 a.m. in Singapore on Aug. 20 to respond to the changes and a vote on the amendments will be held in the city on Aug. 22. Deutsche Bank AG is the sole consent solicitation agent.
Bumi director Dileep Srivastava said the company expects it will be able to extend the repayment of the notes’ principal until April 2018.
“We expect a favorable vote on August 22,” Srivastava said in an e-mailed response to questions from Bloomberg News today. “As part of this vote any potential default would be waived without consequence.”
Srivastava also said an agreement with noteholders on Aug. 22 would confer the presently unsecured convertible bonds “equal secured status pari passu with other debt.”
Bumi, part of the Indonesian Bakrie family business, had in its initial June 5 proposal to bondholders sought to change the notes’ maturity to July 2021 and lower the coupon to 7 percent. A June 20 meeting to consider those amendments failed because a quorum wasn’t achieved.
Bumi subsequently sent another letter with a new lot of sweetened terms to noteholders. That letter proposed splitting the $375 million of bonds into two tranches, one of which would include $225 million of April 2018 debt paying a 6 percent coupon and convertible into Bumi shares at 300 rupiah each after Aug. 5, 2015, and another comprising $150 million of April 2018 8.5 percent straight debt.
Shares in Bumi slumped 5.7 percent, the most in more than a month, to close at 182 rupiah in Jakarta. The stock has fallen 39 percent this year compared with a 20 percent increase in the Jakarta Composite Index.
Bumi’s $700 million of 10.75 percent notes due 2017 rose 0.29 cents to trade at 45.925 cents on the dollar, the highest in a week, Bloomberg-compiled prices show. Its convertible notes, sold by unit Enercoal Resources Pte in 2009, were quoted down 1.75 cents at 40.375 cents, and touched a record-low 36.5 cents June 3.
Bumi, 29.2 percent-owned by the Bakrie group, warned in June that it’s “highly likely” to default if bondholders don’t consent to a restructuring. In December, PT Bakrie Telecom missed a coupon on $380 million of 2015 notes, while PT Bakrieland Development didn’t make a put option payment on $155 million of 2015 convertible debt in March 2013.
Of the four coal miners in Indonesia that Moody’s Investors Services rates, Bumi is the weakest, and doesn’t have enough cash to meet more than $1 billion of obligations within the coming 18 months, the ratings company said in an Aug. 1 report.
Benchmark coal prices in the Southeast Asian nation have fallen 9.8 percent this year to $72.45 a metric ton on July 31, extending a two-year slump to the lowest since November 2009.
“Bumi does not have the internal capacity to fund these upcoming maturities,” Singapore-based analyst Brian Grieser said in the report. “In the likely absence of fresh funds, we believe Bumi will be left with two options. Sell further stakes in its two main coal mines, or get lenders to modify terms or extend maturities.”