Indonesian coal miner Bukit Makmur Mandiri Utama (Buma) achieved significantly better terms on its 2010 refinancing than its 2009 acquisition financing. Buma is chancing its luck again and is out to banks to refinance the second deal with a seven-year tenor and a larger facility of $750 million.

The latest move may be a step too far. Nothing has changed in the underlying credit since the last deal, al­though pricing for Indonesian deals has since tightened.

Owner Delta Dunia is 40% owned by Northstar Pacific Part­ners, an Indonesian private equity fund linked to Texas Pacific Group. The original facilities funded Buma’s take­over through a novel mix of bonds, loans and equity: Delta Dunia also sold shares for Rp3.64 trillion ($385 million) in November 2009 to add to proceeds from the bond and loan.

As bank liquidity increased in 2010, Buma approached the debt market for facilities with less restrictive covenants. The required debt-to-equity ratio was also loosened, as was the cash sweep mechanism. All cash was swept back to repay the lenders under the initial loan – under the terms of the refinancing some can be used for capital expenditure to help the company expand.

Buma signed its new $600 million five-year loan on 29 Novem­ber 2010. The facility was used to repurchase a $315 million five-year bond (due in 2014 and priced the previous year) and refinance a $285 million loan.

The original bank loan, due to mature in 2013, had an annual interest rate of 4.5% over 3-month Libor and a 5% margin. The bonds, due on 3 November 2014, had an annual interest rate of 11.75% and generated 20% withholding tax – in effect a 14.1% interest rate.

Some syndicated loans bankers argue the original fin­anc­ing should never have included a bond. But liquidi­ty was tight at the time and the US-backed acquirer was more comfortable with a bond than a loan.

The new loan facility pays offshore lenders a margin of 475bp over dollar Libor, and lenders in Indonesia 490bp over Libor. Bank Mandiri joined nine other banks with the largest commitment, with Bank of Tokyo-Mitsubishi, ING and SMBC a notch below. Barclays Capital, CIMB, Indonesia Exim­bank, Intesa Sanpaolo and Morgan Stanley also joined the club deal.

Bank of Tokyo-Mitsubishi, Barclays Capital, ING and SMBC participated in the original $285 million loan, which had a tenor of four years and paid a margin of 450bp. Deutsche Bank, Farallon Capital Partners and Macquarie also took part in this deal.

Texas Pacific Group recently increased its involvement with Buma, acquiring all the non-voting interests in Northstar from the Widjaja family, the Sinarmas group and the Bakrie group. TPC bought those stakes with a consortium that included the Government of Singapore Investment Corp and China Investment Corp. Northstar owns a 40% stake in Delta Dunia, which owns Buma. The private equity house and sovereign wealth fund connection could help Buma secure the even-tighter pricing that it is hoping for this year.
 
BUMA
Status: Financial close 29 November 2010
Description: $600 million refinancing of acquisition debt for coal miner
Sponsor: Bukit Makmur Mandiri Utama (BUMA)/Delta Dunia Makmur
Mandated lead arrangers: Bank Mandiri, ING Bank, SMBC, BTMU, Intesa Sanpaolo Morgan Stanley, Bank CIMB Niaga, Barclays Capital, Indonesia Exim Bank
Lender legal counsel: Milbank, Clifford Chance