Bumi, the resources company founded by London financier Nat Rothschild, has abruptly postponed a $2bn acquisition of diversified miner Bumi Resources Minerals, owned by the Indonesian Bakrie group.
Bumi said four months ago it would issue $2bn in convertible bonds to buy a 75 per cent stake in BRM, to broaden the portfolio of the company, formerly known as Vallar.
Bumi said in a statement on Monday that the deal “will not proceed at this time due to continuing market uncertainties”.
Shares in BRM, which generates the bulk of earnings from a 24 per cent stake in the Indonesian operations of US gold miner Newmont, have dropped nearly 30 per cent below the June offer. On Monday they fell more than 6 per cent.
“This action ‘not to proceed’ with the BRM stake sale at this time is taken in the best interest of all our Bumi Resources shareholders and to avoid any risk of they being disadvantaged ... because of the current volatile market environment,” Dileep Srivastava, head of investor relations at Bumi Resources, said in an email to the Financial Times.
No timeframe was provided for when the acquisition might proceed. Damage from market turbulence is not limited to the BRM deal. It is also threatening to unravel the current shareholder structure of Bumi, in which the Bakrie family hold the largest stake, of 47 per cent.
The family is facing some of the most serious debt issues since the 2008-2009 global financial crisis and may have to sell down holdings to repay a $1.34bn loan syndicated by Credit Suisse.
The loan has been recalled before a March 2012 maturity due to a 25 per cent fall in Bumi’s shares from an initial listing price of £10 last year to close at 756p on Monday. They are down 47 per cent from a high of £14 in April, rendering the Bakrie holdings insufficient to act as collateral to cover the facility.
Mr Srivastava said the postponement was part of efforts to cut interest charges at Bumi Resources by 50 per cent to $300m by the end of 2012. Bumi Resources is trying to refinance a $1.9bn loan from Chinese sovereign wealth fund CIC.
In June, its net debt stood at $3.42bn, an increase of 25 per cent from January 2010. Its net income was virtually flat at $278m in the first six months of 2011, or slightly less than the interest charges on the CIC loan.
In the same reporting period, Bumi Resources’ net capital gearing ratio rose from 131 per cent to 140 per cent, or from $3.6bn in January 2010 to $4.79bn in June 2011. Revenue rose 24 per cent to $2.14bn.
PT Bakrie Brothers (BNBR), which holds $597m, or roughly half of the Credit Suisse-led loan, said in a statement on Monday it was “in final negotiations and documentation of a new financing facility to enable BNBR to satisfactorily resolve any issues in the Credit Suisse loan through a combination of partial repayment of existing lenders and rolling the balance into a new facility”.
The Bakries have been in discussions with trading company Glencore, which is considering lending the family several hundred million dollars.
The other half of the loan is held by Long Haul Holdings, an unlisted Bakrie company.