Bumi turns to China after high-yield dream fades

Bumi Resources may prove to be a headache for equity investors and a disappointment for bond investors, but banks – at least the ones brave enough to lend to the Indonesian coalminer – cannot seem to get enough.

Within six months, Bumi Resources has signed as many loans, including bridge facilities and term financings, paying juicy returns to banks committing to the borrower.

During the same period, a shareholder row brewing at Bumi PLC between the Bakrie family and Indonesian partner Samin Tan on the one hand, and financier Nathaniel Rothschild on the other, has put paid to hopes of a high-yield bond and given equity investors many a sleepless night. (See Loans section).

In the latest twist, Bumi Resources on February 6 signed a US$600m four-year bilateral loan to refinance three of the bridge facilities signed late last year. China Development Bank was the original lender and arranger on the bilateral, with Bank of China as facility agent.

While bond investors must await their turn to mine Bumi Resources for yield, the borrower has reduced the cost of its borrowings through loans at a time when others have found the going tough

The four-year loan from CDB pays 670bp over Libor, which is not too far from the pricing on the three 12-month bridge loans of US$200m each from Bank of America Merrill Lynch, Barclays Capital and JP Morgan.

Those bridge facilities, paying margins north of 550bp over Libor, pre-paid a US$600m tranche of a US$1.9bn convertible note issue made to China Investment Corp in September 2009, allowing Bumi Resources to reduce its interest costs. Another US$600m tranche comes due in October 2014 and the US$700m balance in October 2015.

The CIC debt pays a cash coupon of 12% annually and an additional amount on maturity, taking total annual returns on the Chinese fund’s investment to 19%.

No more bonds?

CDB’s loan to Bumi Resources will disappoint bond investors, who had hoped the company would return to the high-yield bond market. When BofA Merrill, BarCap and JPM provided the loans last year, the expectation was that they would get mandated on a US dollar bond take-out.

The trio had earned themselves the “right of first refusal” on the bonds, although the plans were dropped when the Bumi PLC shareholder row erupted.

Moreover, high-yield bond issues from Asia came to a standstill in the second half of 2011 amid volatile market conditions, adding to the pipeline of borrowers wanting to issue deals.

A minimum US$600m size was expected from Bumi Resources, with some market participants suggesting it had eyed as much as US$1bn to take out more of the expensive CIC debt.

Asia’s high-yield market has reopened in 2012, while liquidity in the bank market remains tight following the retreat of European banks and the rising cost of funding.

This means Bumi Resources is still likely to enjoy a strong reception in the global bond market – especially because of Indonesia’s recent ratings upgrade, which has led to a tightening of spreads on Indonesian debt. While some analysts believe this extreme tightening has been overdone – Indonesian 10-year paper now yields just 60bp more than the Triple A rated Australian version – the upgrade story has already allowed compatriot Cikarang Listrindo to return to the high-yield market (see Bond section).

While bond investors must await their turn to mine Bumi Resources for yield, the borrower has reduced the cost of its borrowings through loans at a time when others have found the going tough.

In a matter of six months, it has slashed the cost of a third of the CIC debt by a third – no mean achievement in the current environment and against the backdrop of the negative noise and distractions at the Bumi PLC level.

Meanwhile, Bumi Resources’ US$200m five-year loan, which India’s Axis Bank pre-funded in October, remains in general syndication.