Moody's changes Berau Coal Energy outlook to positive
Monday, February 27 2012 - 09:31 AM WIB
Moody's has also assigned a provisional (P)B1 rating with a positive outlook to the proposed five-year senior notes.
The notes will be issued by Berau and unconditionally guaranteed by PT Berau Coal, PT Armadian Tritunggal, Empire Capital Resources Pte. Ltd., Winchester Investment Holdings PLC and Aries Investments Limited, Seacoast Offshore Inc. and Maple Holdings Ltd.
The provisional status of the notes will be removed once the issuance is completed.
RATINGS RATIONALE
"The positive outlook reflects Berau's continued improvement to its operating performance and financial metrics, and our expectation that Berau will continue to maintain a prudent financial profile," says Simon Wong, a Moody's Vice President and Senior Analyst.
"The proposed bond issuance and the higher capex during 2012 to 2013 will increase Berau's adjusted consolidated debt/EBITDA leverage to around 2x, which is still strong for the current rating. We expect Berau to gradually deleverage over the medium term," adds Wong, who is also lead analyst for Berau.
Berau's adjusted consolidated total debt/EBITDA was 1.5x for LTM 30 September 2011.
The company has increased its budgeted capex over the next three years to about US$691 million in order to construct an overland conveyor and power station, boost production capacity, and fund the exploration and development of two new mine sites.
It plans to use the proceeds from the proposed bond to refinance the existing credit facility, fund capital expenditure, and for general corporate purposes.
"Nevertheless, the maintenance covenants attached to the existing credit facility will be removed following the refinancing. Furthermore, the recent shareholder change at Bumi PLC, as well as the subsequent proposition to reshuffle key board members of Bumi PLC, have added some uncertainty for investors," adds Wong.
Berau is 84.7%-owned and controlled by Bumi PLC.
Bakrie & Brothers sold half of its 47.6% effective interest in Bumi PLC to Borneo Lumbung Energi & Metal (Borneo) in early 2012. Borneo is a major coking coal producer in Indonesia.
The B1 rating reflects Berau's majority ownership of PT Berau Coal, one of the world's lowest-cost producers and exporters of coal with a consistent track record of production growth. In addition, its customer base consists of large utilities with excellent payment records.
The ratings also consider Berau's lack of diversification, given its single concession and single product, and its exposure to commodity cycles, as well as the uncertainty in the regulatory environment. Berau also faces a high level of concentration risk, as its top ten customers account for approximately 75% of its revenue.
The positive outlook reflects Berau's improved credit metrics, expanding production capacity, and Moody's expectation that Berau and Berau Coal will maintain a prudent financial profile.
Upward rating pressure may emerge if Berau expands its production capacity as planned, while maintaining the current prudent financial profile such that adjusted consolidated total/EBITDA remains below 2x and adjusted consolidated EBIT / interest expense stays above 3.75x.
Moody's would also like to see a track record of stability in Berau's ownership and more clarity of its strategic direction under Bumi PLC.
Downward pressure on the ratings could emerge, if industry fundamentals deteriorate, leading to a decline in free cash flow that could constrain Berau's ability to make debt payments. Indicators that Moody's would consider as triggers for a downgrade include adjusted consolidated debt/EBITDA rising above 3.5x or adjusted consolidated EBIT/interest expense falling below 2.75x.
Other negative rating triggers include (1) a material change in Bumi PLC's financial policy, resulting in deterioration to Berau's capital structure; (2) any adverse decision regarding the off-setting of VAT payments; or (3) any change in laws and regulations, particularly with regard to mining concessions, that would adversely affect the business.
The principal methodology used in rating Berau was Moody's Global Mining Industry, published in May 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
PT Berau Coal (and it parent Berau Coal Energy) is Indonesia's fifth-largest producer and exporter of thermal coal. It operates three active mines (Lati, Sambarata and Binungan) at a single site in East Kalimantan. It had estimated coal resources of 1.94 billion tons, and proven and probable reserves estimated at 467 million tons as of 31 December 2010. (end of release)