Indonesia's Bakrie Group is selling a 23.8 percent stake in London-listed Bumi Plc
The deal with Borneo, which is backed by Indonesian businessman Samin Tan, would help Bakrie pay off the bulk of a $1.35 billion loan and extricate itself from a debt crunch that has weighed on the share price of one of the world's largest coal exporters, Bumi Resources
The agreement between the Bakrie Group, run by one of Indonesia's most powerful families, and Tan marks the second time in three years that the Bakrie family has had to scramble together a transaction to ease its debt.
The deal was sealed after Swiss-based Glencore
It also marks the second time that Tan, who has known the Bakrie family since his time as a partner at accounting firm Deloitte, has negotiated to buy a stake in Bumi, having failed to strike a bold deal in 2006.
Tan succeeded this time after three weeks of talks with the Bakries, who held parallel negotiations over the $1.35 billion loan with several potential partners after a drop in Bumi Plc shares triggered a mandatory repayment clause.
The total cash consideration of $1 billion values Bumi Plc shares at approximately 10.91 pounds each at the date of the announcement. That translates to a 6 percent premium to the last 6-month volume-weighted average price.
The biggest haircut in this deal has been taken by the Bakries, said a source with direct knowledge of the deal. They have lost half their stake in Bumi Plc.
A spokesman said the Bakries would now go into talks with creditors, led by Credit Suisse, to refinance the remaining $345 million, with a deal expected in the coming weeks.
GLENCORE TALKS FAIL
Glencore, seen as the frontrunner until this weekend, had hoped to tighten its grip on coal marketing rights in return for lending Bakrie $800-$900 million, but did not want a minority equity stake in Bumi.
The Bakries, however, were focussed on easing the debt load, even at the cost of selling shares in a key asset.
We think it is net positive for Bumi not having to incur higher marketing costs from allocating greater volumes to the trader, UBS analyst Andreas Bokkenheuser said in a note.
Stock investors remained apprehensive over the deal, which Borneo will fund with a $1 billion loan, and shares of both PT Bumi Resources
PT Borneo slid 15.5 percent and Bumi Resources fell 8.5 percent, compared with a drop of 2.8 percent for Jakarta's benchmark index <.JKSE>. Bumi Plc was 0.7 percent lower at 1300 GMT.
But a top 10 shareholder in Bumi Plc brushed off concerns over governance and the future under a restructured ownership.
The most important thing is that the Bakries are still involved, and putting a JV together with fellow Indonesians I don't think is necessarily a bad thing, said a source at the institutional investor.
Analysts suggested there would in reality be little change for Bumi Plc, which will still effectively have a blocking shareholder through the two vehicles, one holding voting shares and the other the non-voting shares -- a structure which also allows the new partners to sidestep mandatory takeover rules.
Tan indirectly controls 73 percent of PT Borneo and also owns Indonesian investment bank Renaissance Capital.
The Bakrie Group, a sprawling conglomerate, also fended off debt crises in 1998 and 2008.
The family is headed by Aburizal Bakrie, chairman of Indonesia's Golkar Party, who many analysts believe will run for the presidency of Southeast Asia's largest economy in 2014.
CONTROL OF MINES
Tan, an ethnic Chinese Indonesian from a small city in central Sumatra whose family were fish traders, was described by Borneo directors as a straightforward, no-nonsense character addicted to work.
In a 2006 interview with Reuters, Tan described himself as a simple, homegrown financial professional. He said Renaissance was independent of Bakrie.
The deal is not only about Bakrie, he told reporters on Tuesday. It's a world-class asset they have here and it's undervalued too.
Tuesday's deal is part of Bakrie attempts to refinance the $1.35 billion loan obtained in March to consolidate debts.
After the transaction, Borneo together with PT Bakrie & Brothers Tbk and Long Haul Holdings -- companies controlled by the Bakrie Group -- would own an approximate 47.6 percent stake, including an approximate 29.99 percent voting interest in Bumi Plc, according to deal documents.
The deal is subject to the approval of Borneo shareholders in a meeting on December 15 -- a formality since the deal document states Tan's vehicle, PT Republik Energi & Metal, will put its 73 percent holding behind the agreement -- and certain other conditions, including regulatory approvals.
Bumi Resources' share price has been weighed down by concerns over high debt levels and transparency.
In a separate deal to help repay debt, Barclays Capital is providing a $200 million bridging loan to Bumi Resources, Basis Point reported on Tuesday.
(Additional reporting by Michael Flaherty, Janeman Latul, Harry Suhartono, Sinead Cruise and Clara Ferreira-Marques; Editing by Alex Richardson and David Cowell)