by Goldman Sachs
On june 10, Vallar Plc annouced its intention to acquire 75% of Bumi Resources Minerals from Bumi Resources at Rp850/share for a consideration of US$2.07 bn by issuing Convertible Bonds in Vallar’s proposed new parent company Bumi Plc. The CBs will carry a coupon os 2% and will mature in 2017. The 3Q2011. Per the announcement.
BRM consist of a portofolio of mining assets (lead, zinc, gold, copper, iron ore) of wich Newmont Nusa Tenggara is the main cash generating asset.
In our view, the proposed CB issuance is a “related party” debt with a potensial cross-holding structure, if converted into equity (Vallar currently owns a 25% stake in Bumi). We also note that the cash coupon on the CB of 2% is significanly lower compared to the cash flow on NNT. We estimate that Bumi could lose US$226mn of pre-tax cash-flow in 2012E from NNT, while it may earn only US$41mn p.a. of cash coupon on the proposed CB. Overall, we believe the proposed transaction could dilute Bumi’s 2011E/12E/13E EPS by 17%/18%/28% (full year impact), while 2012E CROCI could be reduced from 17.4% to 16.2% on lower cash inflow from NNT.
Although Bumi may become more of a coal pure play post this exercise, the resulting inability to tap into future potential upside from Bumi Resources greenfield projects such as Dairi, Mauritania and Gorontalo could be seen as a negative risk by the market. Meanwhile, we estimate the deal terms imply 14x2012E P/E (if we were to include NNT’s 2012E net profit) and 1.4x2010 P/B.
We believe the market could react negatively to tjis news, and we reiterate our Sell rating with Target Price Rp2.850