China Investment Corporation provides $1.9 billion loan to PT Bumi Resources for refinancing, acquisition, working capital, and capital expenditure purposes (Linked to Project ID#62282)

On September 18, 2009, Country Forest Limited (CFL) — a wholly owned subsidiary of China Investment Corporation (CIC) signed a $1.9 billion Senior Secured Term Loan Agreement with PT Bumi Resources Tbk (PT Bumi) — an Indonesian mining company and the largest coal miner in the country — for refinancing, acquisition, working capital, and capital expenditure purposes. The loan carried a maturity of six years and a grace period of four years ($600 million 'Facility A' due in year four, $600 million 'Facility B' due in year five, and the remaining $700 million 'Facility C' due in year six). On the maturity date of each tranche, Bumi had to pay the outstanding principal and any unpaid accrued interest, any applicable premium (a calculation beginning at 5% as the first optional repayment date, decreasing on a straight line basis to zero at the applicable maturity, other amounts payable under the relevant facility, a make-whole amount, which is the amount that provides the lender with an overall internal rate of return of 19% on the relevant. The interest was payable monthly, with the first repayment date on November 5, 2009 and had a per annum rate of 12%. PT Sitrade Coal, Kalimantan Coal Limited (KCL), Sangatta Holdings Limited (SHL), and Forerunner International Pte. Ltd served as guarantors. PT Samuel Sekurita Indonesia served as agent. The loan was secured by (i.e. collateralized) the assignment of rights of PT Bumi Resources to receive payments under the Cash Distribution Agreement (CDA); the charge over United States dollar proceeds accounts; the pledge over the receivables under the Indonesian Rupiah accounts; the power of attorney to withdraw funds; the share pledges over the shares of PT Kaltim Prima Coal (KPC), PT Arutmin Indonesia (Arutmin), IndoCoal Resources (Cayman) Limited (ICRL), PT IndoCoal Kalsel Resources, and PT IndoCoal Kaltim Resources by PT Bumi and its guarantors; and the assignment of rights of PT Bumi and each loan restricted subsidiaries to receive any payments under the inter-company loans between them as lenders and the subsidiaries of the company other than a finance subsidiary. The proceeds of the loan were used to pay the remaining balance of the consideration for acquisition of indirect shareholdings in PT Darma Henwa Tbk, PT Fajar Bumi Sakti, and PT Pendopo Energi Batubara, repayment of all existing debt of Bumi, and for working capital and general corporate purposes. The loan to PT Bumi was widely seen as risky move because of its previous debt accumulation. In 2012, PT Bumi posted a net loss of $666 million due to a drop in coal prices and threatened to default on its debt payments to CIC and other lenders. China Development (CDB), of which CIC is a partial owner, issued a $600 million loan to PT Bumi to refinance some of the debt to the foreign banks; see Project ID#62282. On November 8, 2011, PT Bumi used its prepayment option right to repay part of the loan (known as the 'Facility A commitment') ahead of schedule. Then, on October 8, 2012, PT Bumi, CFL, PT Bumi Resources Minerals Tbk, Kalimantan Coal Limited, Sangatta Holdings Limited (SHL), and Bumi Netherlands entered into a Master Deed, which was subsequently amend and restated on January 28, 2014, in order to settle a portion of the remaining $1.3 billion principal amount outstanding under the CFL loan. As of September 30, 2014, the CFL loan was in default under the cross-default provision of the agreement due to non-payment of outstanding principal and/or interest amounts on due dates on other loans. The CFL loan's principal amount outstanding was $1,062,044,361.05 as of April 25, 2016. Its accrued but unpaid interest was $264,919,261.41 as of April 25, 2016. The deal was criticized on financial and environmental grounds. In August 2014, Australian environmental charity the Sunrise Project called CIC's loan to Bumi 'a great example of CIC's lack of due diligence' and suggested that it was one of the 'high-risk bad investments' referred to in a report by China's National Audit Office. It criticized the debt-for-equity swaps, as they helped CIC stay afloat while becoming more involved in the company's environmental and social problems. Greenpeace Australia called the measures a 'lose-lose situation for CIC'.

Additional details

1. In 2017, Bumi Resources restructured its debt, including loans from CIC and CDB; the loans were exchanged for equity and mandatory convertible bonds. It is unclear if the 2009 CIC loan was specifically included (suggesting debt distress or maturity extensions), or if this refers to another CIC loan. This issue merits further investigation. 2. In July 2014, CIC agreed to prevent Bumi from entering bankruptcy by purchasing a 19% stake in Kaltim Prima Coal, Indonesia's largest coal mine, in exchange for the settling of $950 million of debt. By August 2014, Bumi agreed to give its 42% stake in its subsidiary Bumi Resources Minerals plus a stake in PT Bumi to CIC worth $150 million to reduce its debt to CIC. On August 12, 2014, PT Bumi defaulted on $375 million of convertible bonds, triggering default under $1 billion senior secured notes due in 2016 and 2017. However, these moves were seen as only providing short-term relief due to further material debt maturities scheduled for 2014 {{see ID#186049}}. 3. China Investment Corporation (CIC) is a state-owned sovereign wealth fund. It wholly owned by the Chinese Government and has its own corporate entity status. The purpose of the CIC is to maximize returns at acceptable risk tolerance and improve the corporate governance of key state-owned financial institutions. It was established in 2007 with about $200 billion of assets under management, a number that grew to $1.2 trillion in 2021.

Number of official sources

7

Number of total sources

13