Fitch Ratings: BUMA’s Rating Headroom Remains Tight on High Leverage
Tuesday, August 31 2021 - 12:47 AM WIB
(Fitch Ratings-Singapore-29 August 2021)--Fitch Ratings expects PT Bukit Makmur Mandiri Utama's (BUMA, BB-/Negative) rating headroom to continue to be tight as we expect the Indonesian company's leverage in 2021 to remain close to our negative sensitivity of 3.3x.
We expect leverage to remain high because we have raised our expectations for BUMA's capex in 2021 to USD350 million from USD100 million as we expect the mining contractor to prepare for higher overburden removal volumes from new and existing contracts. The additional capex will be driven by higher capex intensity for its new contract with PT Adaro Indonesia (BBB-/Stable) and replacement of major components to bring previously unused equipment online.
Fitch previously expected BUMA’s spare capacity, which was built up in 2018 but remained unused due to the sectoral downturn, to be sufficient to support additional volumes from new contracts. However, Adaro’s new contract is more capital intensive due to its mine-specific requirements and longer hauling distance, according to BUMA. We expect BUMA’s FFO net leverage to fall to about 2.6x in 2022, as we expect overburden volumes to grow by about 15% year on year.
We expect BUMA’s EBITDA margins to recover and average at about 27% (Fitch-adjusted) for April-December 2021, after falling to about 9% in 1Q21 following high repair and maintenance costs. Normalisation of costs and rational pricing for new contracts will support our expectations for EBITDA margin of 22%-24% for FY21 to FY23. Fitch’s adjustment treats depreciation from leased assets and interest on financial leases as operating costs, and deducts these from EBITDA.
Continued higher costs in the coming quarters or lower profitability from new contracts may put pressure on the EBITDA margin and slow deleveraging. The company's shareholding structure is also undergoing changes, and any accompanying changes to BUMA’s financial policies or more aggressive growth plans at the cost of margins may weaken its financial profile. A materialisation of these risks could result in a rating downgrade. (ends)