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Bumi Resources: Settlement for Debt Maturity Extension

This morning, Bumi Resources (BUMI) released an announcement on the IDX website ( entitled ‘Debt Exchange’. A friend who read the announcement was shocked: What debt? When BUMI did its right issue, last month, doesn’t it mean that all of their debt problems were settled??

The problem is, just when the announcement came out, the stock of BUMI in the market is already below 300s (from previously Rp350 – 400 per share), so it’s understandable that people panicked. However if you read again the announcement carefully, then it is actually a good news. And to understand the announcement, we need to review BUMI again from the beginning, ie since the company submitted a proposal of debt restructuring to its creditors, in 2015 ago. Okay, here we go.

All the stories about BUMI started in September 2015. At that time, the company had short-term and long-term debt that will mature in the near future (2016 and 2017), with a total value of US$ 4.1 billion. Because the company simply did not have enough funds to repay the loan, the only solution is restructuring, where: 1. Part of the debt will be converted into shares, whether shares of BUMI or shares of BUMI subsidiaries, 2. Another part remains as debt, but the term is extended. On the proposals proposed by the company, BUMI offers to (among others) convert debts of US$ 1.5 billion into BUMI shares at a conversion price of Rp1,660 per share, and extend the maturity date for debts of US$ 1.2 billion over the next five years. More details on debt restructuring points proposed by BUMI, you read it in here.

The initial scheme of debt restructuring proposed by BUMI management to its creditors

But the proposal certainly requires approval from the creditors. So later, after several meetings between the management of BUMI and its creditors, it was finally agreed that from the total debt of US$ 4.1 billion, US$ 2.0 billion of which would be converted into BUMI shares at a conversion price of Rp926 per share (lower than the initial conversion price proposed by BUMI management), while US$ 639 million is converted into mandatory convertible bond (MCB), whereby this MCB can also be converted into BUMI shares within 7 years from the date of issuance.

And about the remaining debt of US$ 1.6 billion (including accounts payable from BUMI suppliers of US$ 190 million), their maturity date would be extended to five years. So remember that when BUMI completed its process of rights issue, last month, then that does not mean all the debts are completely converted into equity. Because some of the company’s debt would remains as debt, but the maturity is extended.

Then, after the voting facilitated by the Court on November 9, 2016, finally the agreement between BUMI and its creditors and suppliers above became effective, so later it is just a matter for the execution of the agreement. For new shares in BUMI, which is the result of debt conversion, as well as its MCB, would be issued through a rights issue of US$ 2.6 billion, and the right issue has been successfully executed in July 2017.

Meanwhile, for the remaining US$ 1.6 billion of BUMI's debts, the company will issue new senior secured notes, consisting of tranche A, B, and C, which will mature in 2022, in exchange for the old notes. And until August 18, 2017 only a number of creditors represented 98% of the total debt of US$ 1.6 billion above, which has delivered a debt swap notification to Bank of New York Mellon of London branch, which acting as an exchange agent. So today BUMI reminds its creditors, who still have not submitted the letter, to immediately do so no later than September 11, 2017, at 4:00 PM, London time, England. If any creditor fails to submit a debt swap notification letter before the said deadline, they will lose their rights to collect the debt. Yup, so this is just like when BUMI has obtained an effective statement from FSA to do a right issue, later the company send letter to its creditors to immediately submit the registration sheet that they will exchange their debts with new shares of BUMI, and if there are creditors who failed to do so before the specified deadline, they will lose their claim rights.

By the way some people may be confused: If there are creditors who do not swap their old debts with the new ones, then BUMI’ liabilities becomes forfeited? Is it that simple?? Well, although it seems unfair, but both BUMI and its creditors have jointly agreed to do a debt restructuring through voting held at the Central Jakarta Commercial Court in November 2016 ago. So in this case, the management of BUMI never forced its creditors to convert their debt, nor ‘threatened’ that the loan will be vanished, but the debt conversion was a mutual agreement among all parties. It’s like when you buy ticket for the plane, but if you are late to come to the airport then of course, your ticket is automatically cancelled without refund, and nothing you could do about it.

So, in or after September 11, BUMI will release an announcement regarding the final update of the execution of the debt swap, or the same as when in late July the company released the announcement that the right issue was successfully done. Later, for its financial report as of third quarter of 2017, BUMI debt of US$ 2.6 billion will be completely converted into equity, as well as mandatory convertible bonds, while another US$ 1.6 billion will remain in debt but the term is extended into five years ahead, plus bonus of lower interest rates which only 7.5 – 9% per annum, from the previous 9.25 – 12% pa (that’s fun, right??).

Then how about the stock price? Well, what do you think??

Any inquiries, contact the author (Teguh Hidayat) by email,

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