Arutmin may abandon bond issue plan

South Kalimantan coal producer PT Arutmin may now abandon its plan to issue $300 million in five-year bonds and instead take out a loan because of more favorable borrowing costs, a company official said Tuesday.

"Banking loans now look more attractive than before" as lending rates are falling, Arutmin's Finance Director Edi Sobari told agency.

But bond traders in Jakarta said the company may cancel the bond issue as it's failed to attract sufficient interest.

"Arutmin is a good company, but investors shun it because of its links to the Bakrie Group," said one bond trader.

PT Bumi Resource, which is part of the debt-ridden Bakrie Group, owns an 80% stake in Arutmin that it purchased from BHP Billiton in 2001. Traders said many debt securities that Bakrie Group issued in the past had gone sour following the 1997-98 Asian financial crisis.

Edi said the company has talked with some local and foreign banks and would expect to start drawing down the loan in January should it finally decide to cancel the bond issue.

Arutmin launched the bond in August, indicating the coupon would be between 9.25% and 9.50% per year.

The company needs the funding to refinance the company's higher interest debts. The bond was to be backed by collateral worth 150% of the bonds face value as a guarantee to investors. The collateral was to include long-term and spot sales contracts, insurance claims and account receivables.

Arutmin produced 10.6 million metric tons of coal last year, and that is expected to rise to 15.8 tons this year. It has a 30-year contract to mine coal in South Kalimantan until 2019.(*)