This morning, Bumi
Resources (BUMI) released an announcement on the IDX website (www.idx.co.id) 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, teguh.idx@gmail.com
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