Bakrie Group's Bumi Resources: Shares Plunge on Bond Default Concern
Shares of Bumi Resources, Indonesia’s largest coal miner by production volume, had plunged more than 13 percent by 16:00pm local Jakarta time on increased concern that a default is looming after the company failed to gain approval from bondholders to change the terms of its USD $375 million bonds due on 5 August. The Bakrie Group-controlled miner intended to extend the maturity of its bonds while lowering the coupon and conversion price. However, this plan was not approved in a bondholders’ meeting held in Singapore on 20 June 2014.
Bumi Resources Director Dileep Srivastava stated that the company will continue to discuss the possibility of changing the terms of the bonds (currently having a coupon of 9.25 percent), which mature on 5 August, with its bondholders in the weeks ahead. The company would like to reduce the bonds’ annual coupon to seven percent and change the conversion price to IDR 750 (USD $0.06) from IDR 3,366.9 (USD $0.28).
If Bumi Resources defaults on its USD $375 million bonds, then it would be the third occasion that an unit of the Bakrie Group would have defaulted on bonds. Other subsidiaries of the Bakrie Group, Bakrie Telecom and Bakrieland Development, defaulted on bonds payments in early 2013.
Earlier in June 2014, Bumi Resources came close to default on its USD $300 million November 2016 bonds before paying an overdue coupon through an USD $1.3 billion debt-to-equity swap with Chinese sovereign wealth fund China Investment Corporation (CIC). In this structure, CIC acquired a 19 percent stake in Kaltim Prima Coal and a 42 percent stake in Bumi Resources Minerals. Both companies are subsidiaries of Bumi Resources.
Bumi Resources also plans to conduct a rights issue, with the aim to collect IDR 6.5 trillion (about USD $551 million) worth of funds, in order to settle its debt at CIC as well as for the payment of its bonds that are due on 5 August. Approval for the rights issue will be requested in an extraordinary general meeting scheduled for 30 June 2014.
Bumi Resources is one of the victims of low global coal prices due to weak coal demand in combination with oversupply.
In 2010, Bumi Resources made global headlines when it teamed up with British financier Nathaniel Rothschild to form one of the world’s most powerful coal mining groups, London-listed Bumi Plc. Not long after, however, Rothschild accused the Bakrie’s of huge corporate mismanagement, thus causing a rift between both sides. After three years of dispute, the terms for the separation deal were finalized in March 2014.
Although the company is Indonesia's largest coal miner by production volume as well as the world's largest thermal coal exporter, Indonesian media portray the company and some of its subsidiaries as controversial due to debt woes and (corruption) scandals.
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