Bumi Resources No change stake in BRMS as of September 2012

Bumi Resources: No change stake in BRMS AS OF September 2012 (Notes as of 27th Feb 2013)

Company’s disclosure - In response to this morning news about BUMI’s change stakes in BRMS from 87% to 45%, Company has clarified and confirmed officially that BUMI IJ still controlled 87% stake at BRMS AS OF September 2012. Management of the company did not want to give further comment and did not want to speculate on the news, despite the registered file to Idx has clearly showed that BUMI’s ownership in BRMS was reported only at 45%.

Our take: Where does the money go? based on our channel check and market talks, there was a high possibility of doing repurchase agreement or “repo” between Bakrie Group with several investors on BRMS shares. And repo rate at this current condition for Bakrie Group should be very expensive in our view. A repo is economically similar to secured loan, where the seller is effectively the borrower. As we dig further, accounting wise, repo may not change the company’s ownership structure as it depends on the essence of the transaction.

However, the interesting question and our concern are :

1. Company’s announcement is focusing the stake ownership AS OF September 2012 while the registered file from the berau administration (custody) reported ownership AS OF 25th February 2013. Repo is “off balance sheet” term where the ownership of BRMS should remain under BUMI IJ unless there’s default.  The file registered to idx clearly showed that the ownership has effectively transferred to other parties and BUMI IJ now only owns 45% stake at BRMS, raising QUESTION about the repo status whether is still current or default. In fact, we have seen that BRMS share has been under pressured couple days before the file registered to idx announced.
2. IF the REPO transaction TRUE, then where does the money go? Should it go into BUMI’s balance sheet to support its operational or debt repayment? Or should it go to Bakrie Family? The answer will be seen in the FY12 audited results. IF the money goes to Bakrie Families, then BUMI should record affiliated party A/R (receivables) as a LOAN to shareholder and would definitely bring more negative sentiment toward BUMI share.

Back in November  2009, BUMI and Bukit Mutiara entered in agreement to grant loan up to US$300mn in 2009 with IRR 19% and until now it still stays at BUMI’s balance sheet as a long term receivables with lack of clarity on the status as it has been renewed until 2015.

Bumi Resources Stock loan agreement

Bumi Resources: Stock loan agreement – Repo for BRMS (Rp720 - Under review)

BUMI finally confirmed there is repo transaction. BUMI finally confirmed on its FY12 financial notes (see notes 51cc) that in 2012, Company entered into 12-month Stock Loan Agreement, which we categorize this as a repo transaction, with several parties which the Company agreed to lend BRMS shares to the Parties or other party appointed by the Parties. But based on the agreement, Company and the parties agreed that any rights or obligations attached to BRMS (including but not limited dividend rights, vote, rights to attend A/EGM) will remain in full control of the Company and never pass or transferred to the Parties or other party appointed by the Parties.

As usual, disclosure risk will remain the main issue in Bakrie Group stock which raising investor concern or confidence. However, this is in line with our expectation (please refer to our previous notes last month on 27th Feb 2013, see below). There is lack of further details about the transaction terms therefore we have difficulty in tracing the fee or cashflow from this transaction to the Company.

Based on our channel check the BUMI’s stake ownership in BRMS may be reported continue to decline temporarily due to the “under-the table” transaction as long as the agreement still applies. In our view this overhang will continue to warrant BUMI trading at discount to peers and suggest diminished market confidence or trust.

Beware of financial support for BRMS. Company also reported that as of 31 December 2012, BRMS and its subsidiaries has negative working capital of US$269mn while BRMS has a very limited source of revenue.Therefore to support its going concern, BRMS plan to extend the maturity of long-term loans that will be due within 1 year. In addition, BRMS also has received a letter of support from BUMI to provide financial support for the settlement of BRMS’s group obligation. Therefore, we may see potential fund raising to support financial or cashflow problem within the Group which may raise market concern on the valuation at this juncture.

No change stake in Bumi Resources Minerals Tbk (BRMS) as of September 2012

Bumi Resources: No change stake in BRMS as of September 2012

• Company’s disclosure - In response to this morning news about BUMI’s change stakes in BRMS from 87% to 45%, Company has clarified and confirmed officially that BUMI IJ still controlled 87% stake at BRMS AS OF September 2012. Management of the company did not want to give further comment and did not want to speculate on the news, despite the registered file to Idx has clearly showed that BUMI’s ownership in BRMS was reported only at 45%.
• Our take - Based on our channel check and market talks, there was a high possibility of doing repurchase agreement or “repo” between Bakrie Group with several investors on BRMS shares. And repo rate at this current condition for Bakrie Group should be very expensive in our view. A repo is economically similar to secured loan, where the seller is effectively the borrower. As we dig further, accounting wise, repo may not change the company’s ownership structure as it depends on the essence of the transaction.
• However, the INTERESTING QUESTION and our CONCERN are :

1. Company’s announcement is focusing the stake ownership AS OF September 2012 while the registered file from the berau administration (custody) reported ownership AS OF 25th February 2013. Repo is “off balance sheet” term where the ownership of BRMS should remain under BUMI IJ unless there’s a DEFAULT.  The file registered to IDX (above) clearly showed that the ownership has effectively transferred to other parties and BUMI IJ as of February 2013 only owns 45% stake at BRMS, raising QUESTION about the repo status whether is still current or default. In fact, we have seen that BRMS share has been under pressured couple days before the file registered to idx announced.
2. IF the REPO transaction TRUE, then WHERE DOES THE MONEY GO? Should it go into BUMI’s balance sheet to support its operational or debt repayment? Or should it go to Bakrie Family? The answer will be seen in the FY12 audited results. IF the money goes to Bakrie Families, then BUMI should record affiliated party A/R (receivables) as a LOAN to shareholder and would definitely bring more negative sentiment toward BUMI share.

Back in November  2009, BUMI and Bukit Mutiara entered in agreement to grant loan up to US$300mn in 2009 with IRR 19% and until now it still stays at BUMI’s balance sheet as a long term receivables with lack of clarity on the status as it has been renewed until 2015.

Related article: Market News Jakarta Feb 25 2013