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.