Moody's assigns first-time Ba3 corporate family rating to ABM Investama
Monday, July 17 2017 - 02:19 AM WIB
The rating outlook is stable.
At the same time, Moody's has assigned a Ba3 rating to the proposed senior unsecured bond issued by ABM.
This is the first time that Moody's has assigned a rating to ABM.
The bond proceeds, along with cash on hand, will be used to refinance existing corporate debt of the restricted group.
"The Ba3 rating reflects ABM's track record of maintaining a strong performance through the cycle, supported by its integrated operations and focus on costs," says Saranga Ranasinghe, a Moody's Assistant Vice President and Analyst.
ABM's subsidiaries are present across multiple stages of the coal supply chain. ABM benefits from synergies and cost efficiencies of owning the supply chain from pit to port.
"The rating also takes into consideration ABM's moderate financial profile, supported by its prudent capital management and resilient performance during the recent downturn in coal prices," adds Ranasinghe.
Utilizing cash on hand and cash flow from operations, ABM has paid down around $166 million of debt since 2012. ABM's reported debt at the end of March 2017 was $508 million, down from $674 million at the end of 2012. ABM made voluntary repayments of $15 million in 2016, $25 million in March 2017, and another US$10m in June 2017. This reflects the company's commitment to maintaining a prudent capital structure and its conservative financial policies.
At the same time, ABM has managed the down cycle by materially reducing its capital expenditure to minimize the impact on its cash flows.
Under Moody's price expectations for Newcastle thermal coal at $65-$70 per ton, Moody's expects ABM's adjusted debt/EBITDA will remain below 3.0x in the next 12-18 months, providing the company with financial flexibility and adequate liquidity to execute its business plan.
The rating is constrained by ABM's high exposure to the cyclical thermal coal industry, small scale, execution risk over the next 12-18 months related to the extension of reserve life at one its key mines, as well as customer concentration risk, given that a few key contracts make up a substantial portion of earnings for the company.
Moody's notes that ABM's power business, PT Sumberdaya Sewatama (Sewatama) is not part of the restricted group, and that Sewatama will continue to operate as an independent entity with no support from ABM.
The stable outlook reflects Moody's expectation that ABM will increase its coal volumes and extend the mine life in the next 12-18 months. The stable outlook also reflects Moody's expectation that the company will maintain its prudent operating and financial policies.
Upward rating pressure over the next 2 years is unlikely, given ABM's small scale compared to peers, reliance on predominantly two mines for coal production and high degree of customer concentration.
Nevertheless, upward rating pressure could emerge over time if the company reduces its customer concentration, establishes long reserve lives at key mines, reduces its reliance on the cyclical coal industry and improves financial flexibility, such that its financial leverage (excluding Sewatama), as measured by total debt/EBITDA, falls below 2.5x; and EBIT/interest (excluding Sewatama) rises above 3.0x on a sustained basis.
On the other hand, downward pressure on the rating could emerge as a result of: (1) a failure to extend mine life and/or a reduction in expected coal volumes; or (2) a failure to maintain or increase volumes in its mining services business; or (3) any evidence of cash leakage to Sewatama.
Specific indicators Moody's would look for include total debt/EBITDA (excluding Sewatama) remaining above 3.5x; and EBIT/interest (excluding Sewatama) falling below 2.0x.
The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
ABM is an integrated energy company with investments in coal mining, mining services, engineering and logistics and power generation.
The company was listed on the Indonesian stock exchange in December 2011. PT Tiara Margo Trakindo (unrated) owns 23% of the company while another 55% is held by Valle Verde PTE LTD (unrated).