Fitch Ratings: Bayan's Rating Unaffected by Bond buyback, Consent Solicitation

(Fitch Ratings-Singapore-28 April 2021)--The ratings of Indonesia-based coal miner PT Bayan Resources Tbk (BB-/Stable) and its US dollar senior notes will not be affected by the company's offer to buy back bonds and its plan to amend certain dividend payout terms of the notes. Bayan has proposed to a buy back up to USD220 million of bonds due 2023, and is soliciting the consent of bondholders to permit additional dividends in an aggregate amount of up to USD125 million, through one or more declarations and payments.

Fitch views the tender for the notes as opportunistic, given the company's cash balance has significantly increased to USD604 million as of 31 March 2021, following the recovery in coal prices since December 2020. Based on investor participation, the bond buyback exercise would result in a net reduction in Bayan's interest expense, after accounting for premium of up to USD10.45 million in the buyback.

We expect the company's credit metrics to remain strong even as we incorporate the buyback of bonds worth USD220 million along with an additional dividend payment. We estimate the the funds from operations net leverage will remain at or below 0.5x in our forecast period to 2024. The current bond covenants permit a dividend payment from a restricted payment basket, which comprises 50% of the cumulative net income, starting January 2019. The remaining size of the restricted payment basket was around USD238 million as of March 2021, accounting for the dividend payments made since the bond issuance.

Fitch views the dividend payout amendment as a one-time event and does not see it as a change in the company's dividend policy. We expect Bayan to maintain a 60% dividend payout ratio (after capex and working capital) when the bonds mature in January 2023, in line with its policy before the bonds were issued in January 2020. We estimate Bayan will remain free cash flow positive over our forecast period to 2024. Bayan does not have any other significant expansionary capex requirements, besides the construction of a haul road with an estimated cost of USD190 million. Fitch expects Bayan's annual capex to peak in 2021 at about USD200 million and then decline to USD70 million in 2022 and USD40 million in 2023. (ends)