Bumi to spend Rp 8t to buy back shares

Alfian ,  The Jakarta Post ,  Jakarta   |  Fri, 11/14/2008 7:06 AM  |  Headlines

PT Bumi Resources, Asia’s biggest exporter of power-station coal, will spend Rp 8.25 trillion (US$696.2 million) to buy back shares to boost its falling stock price and ease concerns its recent slide could disrupt the sale of its parent company’s stake.

Bumi, the most prized unit of Bakrie & Brothers, which is controlled by the family of people’s welfare minister Aburizal Bakrie, plans to buy back up to 3.3 billion shares at an average price of Rp 2,500 each, it said in a statement submitted to the Indonesia Stock Exchange on Thursday.

The block represents around 17 percent of the company’s outstanding shares.

The announcement came as Bakrie is selling its 35 percent stake in Bumi to a consortium led by investment firm Northstar Equity Partners, to raise funds to expedite payment of debts backed by shares in its units.

While the sale process is underway, Bumi’s shares have received a battering, tumbling by 46 percent since its suspension on trading was lifted on Nov. 6, according to Bloomberg.

The drop has raised fears Northstar might seek an adjustment in the selling price to reflect the market value.

Bumi confirmed in the statement the aim of the repurchasing plan was to reduce the volatility of the company’s falling share price.

Stock market analyst Budi Ruseno of PT Bhakti Capital said Bumi’s move was understandable but warned of a disruption in the company’s business activities should the buyback be financed primarily by the company’s internal cash.

“The management’s plan to buy back the shares is a very normal decision considering that Bumi’s shares have continued to fall lately,” Budi said, adding it showed that the company still had enough liquidity.

“The question is where the money comes from. The company’s expansion plans may be hampered if the funds for the buyback come from the company’s operational budget.”

Bumi said it would buy back the shares over the next three months starting Fri-day. For the buyback, Bumi will allocate Rp 8.25 trillion from loans and company funds.

Bumi said if the company spent the entire amount allocated, the buyback would reduce its assets by as much as $224.67 million and its equities by $824.67 million. It also projected its profit over the next three years would fall by $132.2 million.

Another analyst, Adrian Rusmana of HD Capital, agreed the move would help the company’s stock performance.

“This shows the issuer’s responsibility toward its investors. The buyback will improve Bumi’s share performance.”

In the statement, Bumi also said the repurchased shares could be sold to a third party, used as collate-ral to secure loans or swapped for the company’s debt obligations.

Bakrie & Brothers is accelerating the payment of $1.2 billion in debt, partly to release the bond on unit shares used as collateral.

Brokers used shares pledged as collateral to create asset-backed securities and sell them to retail investors as interest-paying notes, known as repos. Bloomberg reported an estimated 15.2 billion Bumi shares were connected to repos.

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