Days after coal producer PT Bumi Resources announced that it was planning to sell off two of its key mines, it has confirmed that it plans to merge with oil and gas firm Energi Mega Persada.
The expected merger won't take place till July, but the two publicly-listed companies plan to merge through a share-swap mechanism. If approved, the combined company will be No. 2 in its sector, behind state-owned PT Perusahaan Gas Negara.
The merger plan was confirmed to media in Jakarta during a briefing by the company on Tuesday (March 21). It comes on the heels of Bumi announcing that it will sell 95% of PT Kaltim Prima Coal and all of PT Arutmin Indonesia and IndoCoal Resources for $3.2 billion to a group of investors who include Jakarta-based PT Renaissance Capital Asia.
The sale, on one hand makes sense: Last year, Bumi produced around 45 million tonnes of coal, while its sales reached 44.3 million tons, with an average price estimated at $40 per tonne. But many expect that while China - the key driver of the demand - may still need more coal, the price is likely to drop this year. So Bumi may have gotten out, at the top of the game.
The company has said it plans to use the proceeds from this sale to build plants on Borneo or Sumatra that produce diesel from coal and palm oil crops. But some analysts are sceptical.
For example, on Wednesday, Macquarie Securities issued a report noting that while the the sale of the key mines enables Bumi to realise value, it leaves Bumi "a virtual shell company with around $2.4 billion in cash and some exploration concessions."
And so, Macquarie Securities recommends: "Our sense is that many investors have bought Bumi shares for exposure to the Indonesian resource sector. Immediately after the deal, Bumi will no longer offer that exposure...This, in our view, would be a good time for investors to take some profits on Bumi."
With such market sentiment, it perhaps makes sense that Bumi confirmed the impending deal with Energi Mega Persada.
¬ Haymarket Media Limited. All rights reserved.
