A handful of private equity firms are in the race for the acquisition of Bukit Makmur Mandiri Utama (Buma), the second-largest mining services company in Indonesia, which could result in an LBO for around US$500m.
Among the financial sponsors in the race are Affinity Equity Partners, Carlyle Group, TPG Capital and one other unidentified private equity firm. Citigroup and Deutsche Bank are said to be backing Affinity, which is the only sponsor to have been in discussions with leveraged financiers so far.
Bankers familiar with the situation said that Credit Suisse, which is active in Indonesia, has still not lined up behind any sponsor. Bank of America Merrill Lynch is the sell-side adviser.
Information is very sketchy on the unlisted company, but that has not deterred the private equity firms from queueing up for the acquisition. Owners of the company have put the company on the block again after having failed to complete a sale in late 2007.
Those familiar with Buma said the acquisition could cost around US$1bn, representing an Ebitda multiple of about five to six times. An LBO with a leverage of a maximum two to three times is possible, said bankers.
That’s a low multiple, but lenders will need to get comfortable with several aspects of the transaction. To begin with, not many lenders have appetite for Indonesian risk. Add the LBO dimension, and the universe of possible lenders to the deal is cut to about a dozen banks.
Although Buma’s status as a mining services provider protects it from being exposed to the volatile swings in commodity prices, thus ensuring stable cashflows, lenders will have also have to get comfortable with the concentration risk of its business.
The company operates only in Indonesia and is therefore largely dependent on Indonesian companies for its revenues, although some of the biggest mining companies such as Adaro, Berau Coal, Kideco Jaya Agung and Thailand’s Banpu Group are among its clients.
The last LBO from Indonesia was in June 2005, when Arindo Global borrowed US$600m through a five-year amortising facility to fund the acquisition of 40.8% of Adaro, Indonesia’s largest coalminer, and a 50% stake in Indonesia Bulk Terminal, a bulk loading terminal. Arindo was a special-purpose vehicle owned by Government of Singapore Investment Corp and US hedge fund Noonday Asset Management.
Bankers pointed out that the concentration risk was even greater in that transaction. Nevertheless, nine lenders participated in the deal, which featured an average life of 2-1/2 years and paid an all-in of 440bp over Libor. DBS Bank, Standard Chartered and SMBC were bookrunners on the LBO.
Others suggested that lenders could also draw some comfort from the fact that Buma has medium to long-term contracts ranging from three to five years with its customers. Nevertheless, Buma’s LBO will have to rely almost entirely on foreign lenders to cross the finish line.
The other LBO in the market – the US$825m LBO backing KKR’s US$1.8bn winning bid for South Korea’s Oriental Brewery – has generated domestic interest. Hana Bank has already provided an underwritten commitment of W450bn (US$360m) and is syndicating the borrowing to other domestic banks.
Indonesian lenders might likewise come into the Buma deal, but in a much more limited capacity.