Darlings To Defaults – BUMI RESOURCES

I remember this name well – Bumi Resources.

They had 2 hot high yield issues back in 2009 and 2010 that rallied 10%.

The BUMI 12% 11/2016 (callable 07/2014 at 106) and the BUMI 10.75% 10/2017 (callable 10/2014 at 105.375).

The 2016 bond coupons were paid yesterday after some delay, narrowing averting a default. And today, the company warned they were “highly likely” to miss the maturity payment on their US 375 mio convertible bonds in August after missing the monthly coupon payment for June. http://www.bloomberg.com/news/2014-06-12/bumi-warns-of-default-if-consent-not-won-for-bond-restructuring.html

Bumi 12% 11/2016. Indic price 50/52.25 (38.8 /36.84%)
BUMI 12 2016

Bumi 10.75% 10/2017. Indic price 50/52 (49.96/47.58%)
BUMI 10.75 2017

Bumi’s stock price recovered 2% after making the payment.
Bumi Resources Stock Price Chart

Bank analysts started downgrading Bumi bonds last August after Moodys cut their ratings in July to junk, Caa1. This was after 3 years of shareholder wrangling that led to a 3 month stock suspension which saw their shares rise 6.1% initially when Bumi Resources formally split from Bumi Plc.

In Feb, investors were already loading up on the bonds which were seen as attractive at 30% yield. http://www.bloomberg.com/news/2014-02-25/bumi-yields-30-as-coal-drop-hits-rothschild-split.html

The lows in both the bond prices mid May was in the region of 37 cts.

It is a shame for this once upon a time market favourite that is debt laden and seeing their operating income gobbled by bond interest payments that is well over USD 100 mio per annum. Bumi’s interest expense is expected to take up to 20% of their revenues this year.

I think we have come to the punt zone for this one and many an old time investor would not believe that they have come to this and the show down on 18 June with the convertible note holders for a restructuring of terms. it is hard to believe for their pedigree background and once upon a time largest coal miner in Indonesia.

Incidentally, Energy Future Holdings that we mentioned some months back are seeing heightened activity in their bonds as prices touch 11 cts. Now this may seem like a small number until you realise that the lows were closer to 1 ct which has given investors who had bought it a  return of 1000% or 10 times.

So as the markets continue to snap up every single high yielder they can find, we should also remember that defaults only come later.