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Friday, June 17, 2011

Potential Swap Deal ? - Bumi Resources Tbk

by Samuel Securities

• Vallar to acquire 75% BRMS’s stakes from BUMI. Vallar Plc announced on Friday (June 10th, 2011) a major re-organisation through the transfer of 75% PT Bumi Resources Minerals (BRMS) to Vallar. The acquisition BRMS is priced at Rp850/share which represents a 21.9% premium to BRMS’s 30 day average closing price. Vallar intends to take up the issue of whether mandatory take over is applicable with the regulators.

• CB issuance in exchange of BRMS shares. In exchange of the 75% ownership in BRMS will be in form of listed convertible bonds to be issued to BUMI approximately US$2.07 bn with 2.0% coupon and a £15.88 initial conversion. The CB will be convertible into approximately 79mn new Vallar’s shares at the initial conversion price. The transaction is expected to complete in the 3Q11 and will require approval of Bumi’s shareholders.

• BUMI will loose income from NTT. Under this scheme, we view that BUMI won’t reduce its debt level and will loose income from NTT’s dividend instead, which we estimate around US$70mn in FY11-12. In return BUMI will earn interest income around US$41mn pa from the CB, net off will result in lower net earnings of around 2.5% in FY11-12.

• Potential swap deal? Regarding BUMI’s plan to reduce loan and considering cross holding is not allowed based on Indonesian Law number 40,2010, article 36, therefore we view that the CB are potentially placed out to prospective buyers and could be part of BUMI’s de-leverage plan. Hence, there are potential of swap deal between the CB and CIC loan, and if such scenario applied, it should be positive towards BUMI’s bottom line. We calculate 2 scenarios with CIC loan reduce up to US$600mn and US$1.9bn and we estimate interest saving around US$124mn-387mn pa. Net earnings should increase by 4.8%-22.3% in FY11, and 4%-19% in FY12.

• Puzzle has yet to be solved. BUMI’s share price dropped by around 5% following the announcement from Vallar as the deal has confused the market. We view that the puzzle has yet to be solved ie: what is the purpose of CB issuance to connect with de-leverage plan. BUMI is now trading at 15.2x-12.9x PER’11-12, with price target Rp3,950/share. We are waiting for 1Q11 results that will be released by this month. Maintain BUY

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