Tata Power pays USD1.3 billion for 30% KPC-Arutmin

India's Tata Power agreed to pay USD1.3 billion for 30% shares of two coal mining subsidiaries of PT Bumi Resources Tbk---PT Kaltim Prima Coal & PT Arutmin Indonesia. Senior Vice President Investor Relations of Bumi Resources Mr. Dileep Srivastava confirmed the divestment last night. "The USD1.3 billion is inclusive the working capital. It shows Indonesia's attractiveness to the world's investors," he said.

The price is clearly lower than the previous claims that Tata would pay at USD1.6 billion, but for sure it's higher than analysts prediction at USD1 billion. What we need to know is the terms and conditions of Tata's offer.
"The price could be misleading. That's why we have to look deeper into the terms and conditions of the deal," an investment banker said.

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Bumi profit +80%, Gajah Tunggal dropped 66%

PT Bumi Resources reported net profit of USD222 million in 2006, jumped 80% from USD123 million in 2005. Meanwhile tire manufacturer PT Gajah Tunggal Tbk recorded 66% drop in net profit to Rp118bn (against Rp346bn).

According to its financial statement published today, Bumi recorded USD1.85 billion of sales, slightly increased from USD1.75 billion in 2005. Bumi booked gross profit of USD484.4 million, less than 10% growth from USD441 million in 2005. With lower operating expenses, Bumi then recorded net operating income of USD323 million (against USD263 million in 2005). Actually Bumi targetted EBITDA of USD480 million for 2006 from two coal mining subsidiaries (KPC and Arutmin).
The coal mining giant's net profit mainly contributed by lower tax expenses at USD2.52 million against USD56 million in 2005 plus gain from sale of service agreement at USD32 million. Hm...and today the company is expected to announce the winner of 30% shares divestment at KPC and Arutmin.

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Tata, Marubeni, & Mitsubishi submitted bids on KPC-Arutmin

Three giants---Tata (India), Marubeni & Mitsubishi (Japan)---have submitted their respective final offers to acquire 30% shares of PT Bumi Resources Tbk in two coal mining subsidiaries---PT KPC & PT Arutmin Indonesia, for undisclosed price. Bumi is expected to announce the winner next week. "You're right. They have submitted their final offers," an investment banker involved in the deal said few minutes ago.

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US$900m for 30% of KPC & Arutmin

Investors are reportedly offering maximum USD900 million for 30% shares in PT Kaltim Prima Coal & PT Arutmin Indonesia, both are coal mining subsidiaries of PT Bumi Resources Tbk. The offers are well below earlier claim that Tata (India) offered USD1.6 billion.

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Bumi divestment, far away

As the share price increased sharply in the last few trading days, investors should be careful in digesting all kinds of information from Bumi Resources or their proxies. Today, Bumi replied JSX question on why the company's asset changed significantly by more than 20%, but you will not get the 'right' answer nor we know how much the changes?

Meanwhile, the company told JSX that six investors are currently in the final stages of due diligence to acquire 30% shares in KPC & Arutmin with expectation of binding offer next week (Feb 28) the latest. After that, Bumi will announce the result in late March.
FYI, Bumi shares price increased almost 100% since the collapse of divestment deal with Renaissance Capital in August 2006, partly because of massive buyback (more than USD200 million) and expectation of the new 30% divestment deal. The failure to close the deal would be a disaster for Bumi and related Bakrie shares, especially if the offered price would be lower than the claims (USD1.6 billion).

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Mitsubishi & KPC-Arutmin

One investment banker close to PT Bumi Resources Tbk told me this morning that Japan's Mitsubishi Corp is almost close the deal to buy 30% shares of two coal mining subsidiaries PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia for USD1 billion. But one of the shareholders denied that. "We're working on the proposals," he said. Mitsubishi is KPC's marketing agent for coal export to Japan while Glencore International handles non-Japan market. Meanwhile BHP Billiton is Arutmin's agent for export market. BHP and India's Tata are competing with Mitsubishi in the divestment of KPC and Arutmin shares.

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Will Bumi cut the deal?

I asked several analysts in town regarding the possibility of PT Bumi Resources Tbk could ink a deal to sell up to 30% shares of PT KPC and PT Arutmin Indonesia.

"I'm skeptical any deal can be closed on Bumi, now or ever," one analyst at local brokerage firm said.
Few weeks ago, I asked the owner of Bumi. "We're quite optimistic that before February 9, we could seal the deal," the famous businessman told me convincingly. Tata (India), BHP (Australia), Mitsubishi were mentioned as potential buyers. Tata had just accomplished major acquisition (Chorus for USD12 billion), while BHP was the controlling shareholder of Arutmin before Bakrie family acquired the company with loans from Bank Mandiri.
But, "I don't believe they could make it. They announced too many actions but delivers none," another senior analyst said.
"They could still cut the deal if the terms are favorable, especially the marketing side & cashflow management. But I don't think that's gonna happen next week," an investment banker familiar with such deals.

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Arbitration goes ahead, KPC divestment status quo

As ICSID had accepted (Bisnis Indonesia today) East Kalimantan province appeal for arbitration process over divestment of PT Kaltim Prima Coal (KPC) last week, the agency might impose status quo on PT Bumi Resources Tbk's plan to divest up to 30% shares in KPC scheduled for accomplishment early next month.

East Kalimantan provincial administration has taken its case against coal mining firm PT Kaltim Prima Coal (KPC) to the international arbitration through the Washington-based International Center for Settlement of Investment Disputes (ICSID) in April 5, 2006 during the due diligence process of KPC and Arutmin Indonesia divestment to PT Borneo Lumbung Energi at USD3.2 billion. Borneo failed to close the deal in August.
At the moment, six investors are conducting due diligence. If the arbitration process goes ahead, the status quo will be maintained until the case is over. It would potentially postpone the divestment of KPC's 30% share.
But Bumi Resources president Ari S Hudaya told JSX today that the arbitration process will not change Bumi's ownership in KPC.

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Tata, front runner to control KPC-Arutmin

Tata, BHP, and Mitsubishi are competing to acquire 30% shares of KPC and Arutmin. But Tata is reportedly the strongest candidate. May be it's not USD1 billion. "It's way too expensive for 30% of both coal mining companies. It's a kind of prop-up share price," one analyst at local brokerage firm said. "But, it's depend on the side agreements, let say on coal off-take. It could USD1 billion if the buyer will have control over marketing or such off-take agreement," another analyst said.

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