Benakat May Sell Elnusa Stake

Benakat Petroleum Energy Tbk (BIPI) may opt to sell its 37.15 percent stake in Elnusa Tbk (ELSA), which was acquired last year, because Elnusa performed below expectations.

The IFT Research Department saw that Elnusa's contribution to revenues was not proportional to the amount of debt borne by Benakat for its acquisition. It would be more beneficial for Benakat to sell Elnusa.

Firlie Ganindito, Director of Benakat, said that selling the stake is just one option. Another option is to restructure the company's management to improve its performance. Elnusa assets are considered to be strategic, but their contribution to Benakat was low.

"We are seriously assessing the two options, and will decide no later than Q2/ 2011," said Firlie to IFT, Monday.

Benakat settled the acquisition transactions worth Rp 894.8 billion from Tri Daya Esta in July 2010. The fund was obtained by issuing promissory notes with 5.6 percent interest per year entirely bought by Indo Tambang Perkasa, a stakeholder of the company.

Based on Q3/2010 financial statements, Benakat’s non-current liabilities were Rp 808.03 billion with a remaining promissory notes debt of Rp 602.76 billion. IFT Research Department analysts said that if Benakat sells all of its stake in Elnusa, its non-current liabilities will drop to Rp 205.26 billion, and the amount of interest which should be paid will also drop significantly.

With a remaining debt from Indo Tambang of Rp 602.76 billion at 5.6 percent annual interest rate, Banakat must pay Rp 33.75 billion of annual interest expense. If Elnusa is sold and all proceeds are used to pay its debts, interest income (expense) will change from negative to positive Rp 76.05 billion.

This amount is higher than the portion of Elnusa's net income on Q3/2010 of Rp 4.35 billion. This means Elnusa's contribution was smaller than interest expense which should be paid by Benakat.

This was evident from Benakat's performance last year. By Q3/2010, Benakat recorded a net loss of Rp 96.32 billion, although its sales jumped from Rp 11.92 billion to Rp 178.37 billion.

Viviet S Putri, an analyst for Anugerah Securindo, said that companies with low contribution but still have high selling momentum, such as Elnusa, should be sold.

"The Elnusa acquisition dragged Benakat, particularly financed by debt. Pertamina will also sell Elnusa as it is too burdensome," she said.

Maintaining Elnusa is not necessarily beneficial, as its future performance is predicted to be stagnant due to insignificant business diversification or expansion. Currently oil and gas service contracts obtained by Elnusa are depending highly on Pertamina projects.

"To get a good price, Benakat should sell Elnusa after Q1, as the stock market is projected to be under pressure until March,” said Viviet.

Other Elnusa’s stakeholders are Pertamina with 41 percent and the public with 27.74 percent.

Besides restructuring, Benakat also plans to sell two coal mines with 100-150 million tons reserve in Kalimantan and one manganese mine in East Nusa Tenggara. The three mines are still in the exploratory stage and do not contribute yet to the company.

"We already have buyers, and the process is being finalized. We target that the process will complete by the first half of 2011," said Firlie.

Funds from selling will be used to acquire coal mines which are already in the production stage. Firlie did not disclose the value for the three mines to be sold.