Fitch Ratings: Indonesian Thermal Coal Entities to Sustain Credit Profiles in 2024

(Fitch Ratings-Singapore-30 November 2023)--Fitch Ratings maintains a neutral outlook on the Indonesian thermal coal sector, expecting credit profiles to remain adequate in 2024 despite a moderation in coal prices. Strong cash reserves and a conservative financial approach provide ample rating headroom for coal miners and mining services entities, even those engaged in diversification-led investments. We anticipate most entities will uphold robust financial profiles, with business characteristics continuing as a primary rating factor.

Entities implementing diversification strategies, like PT Adaro Indonesia (BBB-/Stable) and PT Indika Energy Tbk (BB-/Stable), are projected to witness evolving business profiles in the next 18-24 months as new projects come to fruition. In addition, the growing significance of ESG considerations may expedite changes in business profiles through potential inorganic corporate actions, although these would be likely to be event-driven.

Fitch foresees manageable refinancing risk for the sector, with Adaro and Indika well-positioned to handle bond maturities while maintaining healthy cash balances. Despite shifting funding dynamics due to the rising prominence of ESG considerations, a gradual pace of energy transition in Asia has allowed some flexibility in lending policies for specific regional banks. Indonesia's domestic banks are likely to play a pivotal role in financing transition-capital expenditures, especially for larger coal miners with established relationships. (ends)