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Bakries down but not out in $3.6-bn debt rejig

The Bakrie family is staring up from the pits. Weak coal prices mean the Indonesian clan can no longer ignore problems at Bumi Resources. The mining group needs to take a big haircut on its $3.6-billion debt pile. Even so, few doubt that the family, whose patriarch this month was re-elected as leader of Indonesia's second-biggest political party, will somehow emerge on top.

Indonesia's biggest coal miner owes roughly $1.4 billion on three bonds, which are now subject to a six-month moratorium after the company turned cash flow negative in June and failed to make interest payments. According to a source familiar with the situation, China Investment Corporation (CIC) and China Development Bank are owed a further $1.6 billion, while the remaining $600 million is in the hands of banks including Credit Suisse.

The miner could comfortably manage around $2 billion of debt at an interest cost of around 10-12 per cent and assuming a coal price of $70 per tonne, says Standard & Poor's. That's slightly above where the price has been over the past quarter. That implies a 44 per cent debt haircut. Bondholders are less optimistic. Senior secured notes maturing in 2016 and 2017 are priced at less than 22 cents of their face value, according to Eikon.

A sale of Bumi Resources' principal assets looks unlikely. These include majority stakes in two low-cost, long-life coal miners as well as an interest in precious metals miner Bumi Resources Minerals, which has a market capitalisation of $560 million. CIC recently acquired a 19 per cent stake in one coal mine as part of a multipart agreement to settle $1.3 billion of debt. The rest of that deal is yet complete and now looks uncertain.

Chinese creditors in particular will want to avoid a big haircut. CIC is already under scrutiny for loss-making overseas investments. Yet bondholders are likely to demand that any settlement is on similar terms offered to other creditors.

The restructuring will expand a growing list of international investors who have been burned by the Bakrie family. It is hard to pinpoint the exact size of the family's shareholding in Bumi Resources. Though they face dilution, as they have in the past, political connections and shady corporate governance means the clan is likely to continue to exert influence over the company's key assets.

Source: Business Standard