trending Market Intelligence /marketintelligence/en/news-insights/trending/fflf4tilnbk_5-zfjtqy4w2 content esgSubNav
In This List

Bumi Resources on cautious path after US$4.2B debt restructuring

Podcast

Next in Tech | Episode 49: Carbon reduction in cloud

Blog

Using ESG Analysis to Support a Sustainable Future

Research

US utility commissioners: Who they are and how they impact regulation

Blog

Q&A: Datacenters: Energy Hogs or Sustainability Helpers?


Bumi Resources on cautious path after US$4.2B debt restructuring

Indonesian coal major PT BUMI Resources Tbk. is taking a cautious path after it reduced its US$4.2 billion in outstanding debts by almost half through completion of the largest debt restructuring deal in Southeast Asia in 2017, according to Director and Corporate Secretary Dileep Srivastava.

Srivastava said in an interview with S&P Global Market Intelligence that the company has no plans for further M&A, financing or expansion in the next two to three years, as it focuses on generating revenue from existing operations to repay debt.

Under a restructuring completed in December 2017, the company exchanged about US$4.2 billion in debt into new notes and loans totaling about US$2.4 billion, in addition to rights valued at about US$2.0 billion.

Post-restructuring, the company's debt now consist of three tranches of notes valued at US$1.7 billion and due December 2022, mandatory convertible bonds of US$631 million maturing or convertible in December 2024 and contingent value rights of US$100 million.

The restructuring lowered the company's interest expense, extended debt maturities and provided for more flexible repayment terms, according to Srivastava. "Our immediate priorities are to ensure the continuance of existing operations and to repay debts as per the terms of the composition plan."

SNL Image

Originally announced in 2014, the company had planned to restructure US$375 million in outstanding debts. However, later that year Bumi Resources and three of its units filed for bankruptcy protection in the U.S. because it delayed interest payments for notes totaling about US$1.4 billion. The restructuring itself has also been delayed several times in the past few years as the company negotiated with creditors, banks and regulators.

Tahirah Ara, a Singapore-based lawyer with Withers LLP, said the deal was one of most complex debt restructurings completed in Southeast Asia, as it involved multiple creditors and different types of debts. Ara, who led the Withers team as the lead counsel to Bumi Resources on the deal, added that the restructuring was well received by the market when it closed in late 2017 as coal prices rebounded significantly.

Meanwhile, with coal prices remaining favorable, the company is considering repaying debts ahead of schedule to improve the company's cash position, according to Srivastava. Under the current plan, the company is required to complete repayments of the first tranche in 2022.

"If coal prices remain at the current level, we could probably [pay around US$600 million in tranche A] in 18 months. We can actually advance the payment by two or [2.5] years," he said.

"After five to seven years down the road, we will pursue opportunities ... in downstream [coal] operations, such as gasification … and find additional users for coal," he said, adding that the company would seek to limit additional exposure in metals. In addition to its core coal operations, the company has been expanding into other mineral sectors and consolidated all its non-coal mining assets in 2010.

Bumi Resources' nonferrous exploration budget has fallen significantly in the past few years, from a peak of US$37 million in 2012 to about US$6 million in 2016, according to estimates by S&P Global Market Intelligence.

Srivastava said that investment in the metals segment would be limited as the company expected strategic partners to take care of further project funding and working capital needs.

"We are very cautious on our future investments, outlook and guidance. We do not want to be over-leveraged again. We have taken lessons from the past," Srivastava said, noting that its past debt problems resulted from declines in coal prices as well as its own aggressive acquisition and expansion plans.

Lawrence Altman, a special counsel in Withers' corporate team, said that many companies in the resource sector in the region are also facing similar financial stress, and expected to see more debt restructuring deals among natural resource and energy sector companies this year, considering the improving market sentiment.

"The problem came about for Bumi because coal prices and natural resource prices decreased considerably in 2013 and 2014 when the U.S. dollar was quite strong," Altman said.

"Most of these companies [in Southeast Asia] borrow in dollars because their revenues are in dollars. With a considerable drop in prices of natural resources, companies like Bumi found themselves in financial distress," he added.

Without disclosing names, Ara said that the law firm is working on other restructurings for commodity companies in the region. "With the uptick in commodity prices, we do see [more] companies seeking new terms with creditors," Ara said.