Saturday, September 09, 2006

Bumi deal screwed you up?

JSX asked PT Bumi Resources Tbk of whether the announced US$3.25 billion acquisition price of its assets by PT Borneo Lumbung Energi-Renaissance Capital was the final price? JSX raised the question, investors as well, because Bumi called the collapse of the deal mainly due to disagreement on the final acquisition price.
No clear-cut explanation from both Bumi and Renaissance. But let me give you the likely answer.

The purchase consideration of coal companies (KPC, Arutmin & Indocoal) was US$3.25 billion on debt-free basis, subject to further adjustments, which were expected in May (when Credit Suisse launch the US$2.1 billion fund raising) to amount to approximately US$250 million.
So, in many documents, the expected final price was US$3 billion (excluding US$100 million for working capital & transaction costs). That was early May. Financing plan was then based on the US$3.1 billion cost. The source of funds: US$1 billion of equity from Borneo (consisted of US$300 million plus US$700 million of Borneo Notes issued to UOB) and US$2.1 billion debt to be raised by Credit Suisse (consisted of US$1.1 billion senior notes and US$500 million junior notes).
So, some people (mainly advisors & lenders/investors in Credit Suisse deal) have been aware of the US$3 billion price (max) to be paid to Bumi shareholders. Borneo was reportedly deposited nonrefundable US$120 million down-payment (even though recently Bumi announced the fund would be returned to Borneo).
Under the SPA between Bumi & Borneo, Bumi was also obliged to repay all outstanding indebtedness owed by the coal companies and part of purchase consideration will be used by Bumi to discharge loans owed by Bumi to each of Mitsubishi, Glencore, and PAMA.
And for the transferred rights and obligations, novation was needed of marketing advisory contracts with Mitsubishi & Glencore and consulting deed with PAMA. Condition precedents were: (1) shareholders' approval (obtained in May 17), (2) consents required under the CCOWs or from relevant Indonesian government bodies, and (3) no events of defaults under existing financing documents.
But later of the month, investors got information that buyer was expecting final price of US$2.7 billion to US$2.8 billion which equals to US$400 million to US$500 million adjustment from the purchase consideration. Why? The buyer seems realized the real value of coal assets were not as high as expected combined with difficulties to raise enough funds in the equity capital side.
The expected closing period of the deal failed to materialize in late June as a result. In that month, director general of coal of the energy ministry sent a letter of default on royalties payment at KPC. Tax office is also reportedly sent two warning letters to KPC on unpaid taxes amount to US$40 million. The stories on Bumi's EBITDA for first half below analyst expectations also put more pressure on buyer, lender, and investors. In May, Credit Suisse told investors (when it launch US$2.1 billion financing) that estimated EBITDA for coal companies in 2006 at US$583 million. But in July, investors got the information of well-below epectations EBITDA of only US$118 million at KPC and Arutmin.
Confronting all the problems, the buyer (under pressure from potential lenders) cut further the price offered to unknown exact figure even though some says at US$2.5 billion as the final price (after the adjustments). Some even says at US$2.2 billion to US$2.3 billion.
Apart of the deal, Bumi announced various initiatives including its claim to work with South Africa's SASOL to develop a multi-years-multi-billion dollar coal-to-liquid (CTL) business only to face SASOL's denial.

To be followed...

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