Chinese sovereign wealth fund China Investment Corporation (CIC) will invest $1.9 billion in high-yield debt issued by Indonesian miner Bumi Resources.
In a stock exchange filing yesterday, Bumi referred to the investment as a "debt-like instrument". Of the $1.9 billion invested, $600 million is repayable in year four, $600 million in year five and the remaining $700 million in year six. Bumi will pay CIC a coupon of 12% annually plus an amount at final maturity such that the investment will yield CIC an internal rate of return (IRR) of 19%.
China Investment Corporation (CIC) is responsible for managing part of China's foreign exchange reserves and has $200 billion of assets under management.
Bumi said it will deploy the funds towards debt restructuring and capital expenditure.
"The investment will enable Bumi to implement its growth strategies quickly and provide a stable capital structure," said Ari Hudaya, president director and chief executive officer of Bumi. "More importantly, the partnership creates the platform for CIC and Bumi to pursue investment opportunities jointly."
Bumi is Indonesia's largest producer, and one of the world's largest exporters, of thermal coal.
Samuel Sekuritas Indonesia acted as arranger and financial advisor, and Jones Day was legal adviser to Bumi. Deutsche Bank and China International Capital Corporation were financial advisers and Davis Polk & Wardwell was legal adviser to CIC.
Bumi has been on an acquisition spree as it seeks to further develop its coal mining franchise and diversify its business portfolio and revenue mix through other ventures in the mining sector, such as copper, gold, iron ore, bed methane and power. In July last year Bumi emerged triumphant in a competitive auction for Australia's Herald Resources. The final price at which Bumi valued Herald was $551 million. Early this year, Bumi purchased a majority stake in three Indonesian coal miners for $564 million.
In July Bumi raised $375 million through the first issuance of convertible bonds by an Indonesian firm in 2009. Credit Suisse, who is a perennial favourite on Bumi deals, was sole bookrunner and underwriter. The deal was upsized from an initial offering of $200 million on account of strong demand.
Meanwhile CIC seems to have gone into deal overdrive, which is good news for the investment banks among which it is divvying its buy-side mandates. The investment in Bumi comes only one day after the sovereign wealth fund announced it will pay $850 million for a 14.9% equity stake in Singapore-listed commodities firm Noble Group. CIC worked with J.P. Morgan on the Noble investment. This summer CIC also announced deals to invest in London's business district Canary Wharf, and in Canadian mining firm Teck Resources.