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Geo Energy may scrap acquisition, buys back 8% senior notes

INDONESIAN coal miner Geo Energy Resources said on Thursday that the conditions for the acquisition of PT Titan Global Energy have not been met, so it may terminate the agreement if the terms remain unsatisfied by March 31, 2020. 

The proposed acquisition of PT Titan Global Energy was announced last September through a conditional share-purchase agreement between the company’s wholly-owned subsidiary, Geo Ventures Global with PT Titan Infra Energy and its affiliate, PT Jaya Utama Indonesia. It has since amended the terms of the agreement and extended the date of completion to March 31.

In the event that the conditions are not fulfilled, Geo will "have the right to immediately terminate" the agreement upon giving notice, said the firm in regulatory update. 

The firm also announced that it has repurchased US$111.9 million in principal amount of the 8 per cent senior notes issued by its wholly-owned unit, Geo Coal International (GCI).

Based on the group's unaudited financial statements for the financial year ended Dec 31, 2019 and taking into account the cash utilised for the repurchase, the group has cash and bank balances of US$83.2 million. Its cash and bank balances stood at US$102.1 million as at March 23.

Netted against its current cash and bank balance, the aggregate principal amount of notes outstanding is US$188.1 million. Under the terms and conditions of the notes, GCI or the Company will be required to make an offer to purchase all the outstanding notes in April 2021, in the event that the company does meet certain certain minimum coal-reserves requirements.

Currently, the company does the meet the requirements. Against such a backdrop, it has also acknowledged the series of downgrades of its notes by various rating agencies. 

Geo will continue to "explore potential acquisitions of coal assets in order to meet the minimum coal reserves requirements prior to April 2021" if the proposed acquisition is not completed, it said. 

It also said it is in view that it has "access to sufficient financial resources to pursue potential acquisitions of coal assets", excluding the PT Titan Global Energy acquisition.

Additionally, Geo also recorded an impairment of US$9.6 million on trade receivables under the Cooperation Agreement to conduct joint mining activities in East Kalimantan, which is dependent on the value in use of the underlying coal mines coal reserves.

This comes due to market disruptions caused by the current Covid-19, said the firm. 

"The effects of the Covid-19 pandemic had worsened in March 2020 and affected the Asian coal sector, with supply and demand remaining in flux and volatility in coal prices," it added.