Wednesday, 25 April 2012

Investor concerns about the use of leverage in the Bakrie Group

Deadline looms for Bakries covenant breach

Mon Apr 23, 2012 7:11pm EDT

By Prakash Chakravarti and Janeman Latul

(Reuters) - Indonesian group Bakrie has until Friday to resolve a covenant breach on a $437 million loan following a drop in the price of its London-listed coal miner Bumi Plc last week, sources familiar with the loan said on Monday.

The breach was the latest in a series of debt problems for Bakrie Group, one of Indonesia's largest conglomerates and which avoided a debt crisis last year by selling a stake in Bumi Plc to an Indonesian investor for $1 billion.

Credit Suisse sent a notice on behalf of lenders to the borrower following the covenant breach, after Bumi Plc shares - pledged as collateral against the borrowing - slid 3.8 percent over the course of last week, according to the sources, who declined to be identified because the matter was not public.

Bumi Plc declined to comment. A director at the Bakrie Group's Jakarta-listed coal miner Bumi Resources said he was not aware of any default notice.

Bumi Resources shares dropped 7.4 percent on Monday, while Bumi Plc shares were down a further 7.6 percent on the day by 1150 GMT.

The sources said the notice required Bakrie Group to bring back the collateral coverage on the loan to a level that would require depositing cash of around $100 million with lenders.

Failure to do so by the deadline of April 27 would constitute a default that could lead to lenders demanding prepayment of the full $437 million loan.

The Financial Times first reported on Saturday that creditors issued a default notice on the $437 million loan.

One of the sources told Reuters that Bakrie family arm Long Haul, which took a $247 million portion of the loan, could either top up the loan or pay it and then refinance it.

Either way, a majority of creditors were backing the Bakrie Group so a default requiring full prepayment was seen as unlikely, meaning this was unlikely to become a new crisis, the source said.

A director at Bakrie Group holding firm Bakrie & Bros , which took the other $190 million of the loan that does not require a top-up, said: "We are not in any default situation with our loan at the moment."

Shares in Bakrie & Bros were unchanged on Monday.

Even so, the new debt issue is likely to add to investor concerns about the use of leverage in the Bakrie Group and its subsidiary companies and corporate governance, both issues that have weighed on its stocks in the past year.

Bumi Plc's stock has fallen 43 percent so far this year.

Bumi Plc sought to draw a line under discord between its main stakeholders last month, announcing a board shake-up that saw new major shareholder Samin Tan installed as chairman and that left a role for co-founder Nat Rothschild.

No comments: