Bumi Bonds Drop on Concern Cash Call Won’t Be Fully Achieved

PT Bumi Resources bonds tumbled the most in three weeks on concern the Indonesian coal producer won’t be able to raise all the $561 million proposed from shareholders to repay debt.

Its $700 million 10.75 percent notes due October 2017 dropped 2.3 cents to 44.61 cents on the dollar as of 4:53 p.m. in Singapore, according to Bloomberg-compiled data. The securities have fallen 25 percent since Dec. 31 after two years of losses as coal prices reached the lowest since 2009.

The group’s liquidity remains precarious and the size of the stock rights offering looks “ambitious,” Sandra Chow, an Asian high-yield analyst in Singapore at CreditSights Inc., said in May 7 report.

“They will probably be able to raise some equity, but whether they can do as much as they said they would remains uncertain,” Chow said by phone today. Bumi’s ability and willingness to pay looks “increasingly unpredictable,” she said. CreditSights has an underperform rating on the company’s notes.

The Bakrie family, which controls Bumi and businesses from telecommunications to properties, has been knocked by falling commodity prices and rising interest rates. Patriarch Aburizal Bakrie, chairman of the empire until 2004, is head of Golkar, Indonesia’s second-largest political party.

Completion Risk

Bumi plans to seek approval next month to raise as much as 6.5 trillion rupiah ($561 million) from a rights issue, it said in a statement in the Suara Pembaruan newspaper yesterday. The company plans to repay $150 million to China Investment Corp., $150 million to closely held Castleford and $225 million of its $375 million convertible bonds maturing in August.

“There is likely to be a significant debt reduction and much lowered” finance charges with the rights issue, Dileep Srivastava, a director at Bumi, said in an e-mail today. A stronger capital structure and restoration of financial health will enable Bumi to achieve its target of resuming dividend payments next year despite weak market conditions, he said.

The company’s stock traded at 195 rupiah in Jakarta, and reached 187 rupiah in intraday trade on April 16, the lowest level since 2003. While fresh equity would be positive to its credit profile, the risk remains in Bumi’s ability to complete the proposal, Chow said.

“The proposed rights issue looks ambitious given that Bumi’s current market capitalization is only 4.1 trillion rupiah,” Chow wrote in yesterday’s report. “Given Bumi’s poor operating outlook and weak financial health, demand from public shareholders is unlikely to be overwhelming.”

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