IFR Asia Awards 2014
3 min read
Prakash Chakravarti

Indonesia’s coal sector kept restructuring advisers busy in 2014, but only one company reached an agreement with its creditors without sliding into default.

Mining services group Bukit Makmur Mandiri Utama recognised early on that a global downturn in the coal industry would hurt its ability to service its debt, and took steps to deal with its US$825m debt load well ahead of maturity.

Its pre-emptive approach was in stark contrast to the complex post-default workouts that remain a feature in Indonesia. It put Buma in a better position to ride out the current downturn, and offered a precedent likely to prove valuable for others amid a prolonged slump in global commodity prices.

Buma hired Deloitte to advise on its debt as early as March 2013, only two years after successfully sealing a US$800m seven-year loan, demonstrating just how quickly the business environment had changed.

The 10-bank club loan came with a first instalment of 3% of the principal due in March 2013, 6% in the third year, 15% in the fourth year, 22.5% in the fifth year, 25% in the sixth year and a final repayment of 28.5%.

At the time the deal was signed in March 2011, the price of coal was around US$130 per tonne. In March 2013, it had dropped to around US$92 per tonne, dragging Buma’s revenue 40% below projection as its mining clients scaled back. Buma’s prediction that business conditions would remain difficult has proven accurate, with coal prices falling further to around US$63 per tonne in December 2014, according to GlobalCoal indices.

Although Buma was nowhere near defaulting on its debt, negotiations were far from straightforward. Some lenders were pressing for a straightforward refinancing, while others were pushing for a corporate restructuring and equity injection. Adding to the challenge was the requirement under the original financing that any changes to the terms of the loan would need 100% approval.

Buma kept up its annual repayments on the loan as negotiations dragged on, before finalising new terms in April and signing in August.

The restructuring extended the maturity on the outstanding US$602.69m to December 31 2019 from March 21 2018. As a result, the remaining average life stretched to 4.75 years from around 2.05 years when Buma initiated the restructuring.

Buma increased the margin on the loan to 400bp–500bp over Libor from 375bp and tightened the covenants, reintroducing a cash-sweep mechanism that was absent on the 2011 transaction. Leverage on the restructured facility is higher at 4.16x on a gross debt-to-Ebitda basis, relative to the 3.5x or above covenanted level on the March 2011 loan. Buma also restructured a US$25m bilateral loan from Bank CIMB Niaga.

To see the digital version of this report, please click here.