Moody's affirms ABM Investama's B1 ratings following planned minority investment in coal miner; outlook stable

(Singapore, September 02, 2022) -- Moody's Investors Service has affirmed ABM Investama Tbk (P.T.)'s B1 corporate family rating (CFR), along with the B1 rating on its senior unsecured notes due August 2026.

The outlook remains stable.

"The affirmation reflects our expectations that ABM's credit metrics will not significantly weaken despite its planned primarily debt-funded minority stake acquisition in Indonesian coal miner, PT Golden Energy Mines Tbk (GEMS)," says Maisam Hasnain, a Moody's Vice President and Senior Analyst.

"ABM will gain a 30% stake in one of Indonesia's largest coal miners, with strong profitability, low debt levels and capacity for further production growth," adds Hasnain, Moody's lead analyst for ABM. "The acquisition will also provide ABM additional revenue opportunities to provide mining-related services to GEMS".

The outlook is stable reflecting Moody's expectation that ABM will maintain stable operations at its mining and contract mining subsidiaries, while maintaining sufficient internal cash sources to meet its cash needs over the next 12-18 months.

RATINGS RATIONALE

On 31 August, ABM announced that it had agreed to acquire a 30% stake in Indonesian coal miner, PT Golden Energy Mines Tbk (GEMS) from Indian infrastructure company, GMR Power and Urban Infra Limited for $420 million plus a deferred payment[1].

The transaction is subject to fulfillment of certain conditions precedent including board approval, and consent from ABM's existing banks and noteholders. ABM expects the transaction to close in September 2022.

ABM is funding the purchase with proceeds from a $320 million, five-year loan at a newly created subsidiary, PT Radhika Jananta Raya (RJR) that will hold the 30% stake in GEMS, and $100 million from its internal cash. Moody's expects dividends from GEMS will be sufficient to service the loan repayment. The deferred payment will be based on and funded by dividends received from GEMS, likely between July and September 2022.

The rating affirmation is also premised on the terms of the shareholder agreement between ABM and Golden Energy And Resources Limited (GEAR, B1 stable), the 62.5% shareholder at GEMS, remaining relatively unchanged from the previous shareholder agreement at GEMS between GEAR and GMR.

The shareholder agreement will afford ABM considerable influence over GEMS' operations, investments, and shareholder distributions, which are set as minimum cash dividends at 80% of the cash surplus of GEMS and each of its subsidiaries.

ABM will seek to enter service agreements with GEMS over the next 12 months. ABM's subsidiaries are involved across multiple stages of the coal supply chain and could derive additional revenue and earnings from these agreements.

ABM's earnings over the next 12-18 months will be supported by higher overburden removal volume at its contract mining subsidiary PT Cipta Kridatama (CK) and dividends received from GEMS. Therefore, despite its investment in GEMS stake effectively being primarily debt-funded, ABM's leverage will trend to around 2.0x by end-2023 from around 1.0x as of June 2022. Such leverage levels will remain supportive of ABM's B1 ratings.

Moody's also expects ABM to maintain adequate liquidity with internal cash sources sufficient to meet cash needs over the next 12-18 months. Also, the company does not have any large debt maturities until its $200 million notes mature in 2026.

ABM's US dollar notes are rated in line with its B1 CFR because Moody's expects debt unencumbered by operating assets to remain the clear majority of total debt in ABM's capital structure, and that debt at ABM's operating subsidiaries including PT Mifa Bersaudara (MIFA), RJR and CK will be repaid as per their scheduled amortization profile and therefore will not remain elevated over a prolonged period.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade is unlikely over the next 12 months, given ABM's primarily debt-funded minority stake investment. Nonetheless, Moody's could upgrade the ratings if ABM executes on its strategy to enhance the scale of its mining and mining services operations; realize synergies from its investment in GEMS; and maintains strong credit metrics with good liquidity on a sustained basis.

Credit metrics indicative of an upgrade include adjusted debt/EBITDA below 3.0x, adjusted EBIT/interest above 2.5x and adjusted (cash from operations [CFO] - dividends)/debt above 25%, all on a sustained basis.

Moody's could downgrade the ratings if ABM's liquidity weakens such that it is unable to meet its cash needs over the next 12-18 months; is unable to effectively execute its growth and investment plans; or there is cash leakage to its unrestricted power subsidiary, PT Anzara Janitra Nusantara.

Credit metrics indicative of a downgrade include adjusted debt/EBITDA above 4.0x, adjusted EBIT/interest below 2.0x or adjusted (CFO - dividends)/debt below 20%.

ABM's notes could be notched down from its CFR in the future if debt secured against operating assets represents a clear majority of ABM's total debt, or if ABM's operating subsidiaries continue to increase debt levels on a sustained basis.

The principal methodology used in these ratings was Mining published in October 2021 and available at https://ratings.moodys.com/api/rmc-documents/76085. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Listed on the Indonesian Stock Exchange since 2011, ABM Investama Tbk (P.T.) is an integrated energy company with investments in coal mining, mining services, engineering and logistics, and power generation. The Hamami family controls 79% of ABM through PT Tiara Marga Trakindo (23%) and Valle Verde PTE LTD (56%). The remaining shares are held by the public. (ends)