Tuesday, October 18, 2011

Bumi Resources - 75% stake sale of BRMS is halted

by Mandiri Securities

Bumi Plc announced that its proposed acquisition of 75% stake of BRMS will not proceed at this time due to continuing market uncertainties and will be taken off from the agenda in the EGMS presently scheduled on 21 Oct 2011.

Investor Daily headline also showing high confidence for BNBR successfully refinance its US$1.35bn debt with Glencore as the front runner in the deal and now is in the final stage of discussion which expected to close end of this month.

Our take - Given potential high growth profile of the BRMS’s asset which offers intriguingly upside risk towards BUMI’s valuation in the long term, such cancellation will drive positive sentiment to BUMI stock. Beside that, market have been skeptical and reacted negatively with the Group’s monetization plan on BRMS in exchange of 2% CB of US$2bn which was expected to lead earnings dilutive to BUMI’s bottom line. While in BRMS level, it is neutral since there is no fundamental change.

There is no cancellation on the buy back plan which still up on the EGM on 21 Oct 2011. This news might bring another speculation with the guff on their debt repayment or refinancing plan through the potential other asset sale to smooth the deleveraging story. BUMI aims to lower its interest expense by 50% next year. Buy.

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