Moody's assigns B2 to Indika's proposed notes; rating on review for upgrade

(Singapore, September 27, 2017) -- Moody's Investors Service has assigned a B2 rating to the proposed backed senior secured notes to be issued by Indika Energy Tbk (P.T.) (Indika)'s wholly-owned subsidiary, Indika Energy Capital III Pte. Ltd., and guaranteed by Indika. The proposed notes are on review for upgrade in line with the corporate family rating for Indika.

Indika's B2 corporate family rating was placed on review for upgrade on 25 September 2017 on the back of its announced acquisition of an additional 45% stake in Kideco Jaya Agung (P.T.), Indonesia's third largest coal producer. Moody's ratings rationale was set out in a press released published on the same day.

The proceeds from the proposed notes issuance will be used to finance the acquisition.

In tandem with the proposed notes announcement, Indika is seeking consent from the holders of its 2022 and 2023 notes to effect certain proposed amendments to the notes indenture to (i) enable the announced Kideco acquisition; (ii) substantially conform the covenants of the 2022 and 2023 notes to the covenants of the proposed notes; and (iii) remove certain provisions applicable to Kideco upon Kideco becoming a restricted subsidiary.

At the same time, Indika is also seeking consent from the noteholders to waive the breach of its restricted payment covenant, after it extended bridge loans of $2.2 million to Cirebon Energi Prasarana (CEPR) in May and July 2017. Indika holds a 6.25% indirect equity interest in CEPR, which is a project company that operates a 1,000 megawatt coal-fired power plant.

Moody's believes noteholders will likely waive the covenant breach given that the proposed indenture amendments, including the waiver, constitute a single proposal and has to be consented in their entirety.

This covenant breach will become an event of default if the breach is not cured within 30 days after receiving written notice from the trustee or 25% of noteholders. Following that, there will be acceleration of principal payment of the 2022 and 2023 notes totaling $765 million.

The principal methodology used in this rating was the Global Mining Industry published in August 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Indika Energy Tbk (P.T.) is an Indonesian integrated energy group listed on Indonesia's Stock Exchange. As of 30 June 2017, its principal investment is a 46% stake in Kideco Jaya Agung (P.T.), Indonesia's third-largest domestic coal producer and one of the world's lowest-cost producers and exporters of coal. (ends)