Moody's changes rating outlook of Bumi Resources to negative
Wednesday, September 26 2012 - 12:40 AM WIB
"The negative outlook reflects Moody's concern that the lingering corporate governance issues at Bumi Resources will impact its ability to refinance its scheduled loan maturities of over USD300 million in 2013," says Simon Wong, a Moody's Vice President and Senior Analyst.
On 24 September, Bumi Plc, which has a 29.2% stake in Bumi Resources, commissioned an independent investigation into allegations concerning, among other matters, potential financial and other irregularities in its Indonesian operations, especially in relation to Bumi Resources.
Recent corporate governance issues also include an enquiry from a board member of Bumi Plc in November 2011 that led to Bumi Resources speeding up the recovery of USD231million in funds under management from PT Recapital Asset Management and the collection of its unsecured long-term receivables worth USD251 million due from Bukit Mutiara.
The repayment from Recapital, which was first due in H1 2012 and subsequently on 27 August, did not materialize. Half of the amount from Bukit Mutiara is due in H2 2012 and the remainder in 2013.
"Moody's remains concerned about the substantial interest burden of Bumi Resources, its lower operational cash flow resulting from strained margins, as well as the likely weak demand for thermal coal in the near to medium term," adds Wong, who is also the Lead Analyst for Bumi Resources.
The high debt levels of Bumi Resources and the liquidity risk at the holding company level are also a concern, given the structural separation from the underlying coal assets, which drive the group's cash flow. At the holdco level, Bumi Resources currently has debt of USD3,950 million, of which USD300 million falls due over the next 12 months and will need to be refinanced.
Downward pressure could emerge if Bumi Resources continues with its capacity expansion plans while industry fundamentals remain weak, or if it is unable to reduce leverage at the holding company level. Downward pressure could also emerge if Bumi Resources does not develop timely and concrete plans to refinance the scheduled maturities due in Q3 2013.
Indicators that Moody's would consider for a downgrade include adjusted consolidated debt/EBITDA exceeding 4.5x or adjusted consolidated EBIT/interest expense staying below 1.5x-2x.
Other negative rating triggers include: (1) a material change in Bumi Plc's financial policy that causes Bumi Resources' capital structure to deteriorate; (2) any adverse decision regarding the off-setting of value-added tax payments; or (3) any change in laws and regulations, particularly with regard to mining concessions, that adversely affect the business.
The principal methodology used in rating Bumi Resources was the Global Mining Industry Methodology published in May 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Bumi Resources is Indonesia's largest thermal coal producer and one of the three largest thermal coal exporters globally. Through its principal assets (a 65% stake in PT Kaltim Prima Coal and a 70% stake in PT Arutmin), Bumi produced 66 million tons of coal in 2011 and which accounted for approximately 19% of Indonesia's total coal production.
Its non-coal resource holding company, Bumi Resource Mineral, was listed on the Indonesian Stock Exchange on 9 December 2010. Bumi Resources currently owns 87.09% of Bumi Resource Mineral.
Bumi Plc, previously known as Vallar Plc, completed the acquisition of a 25% stake in Bumi Resources in March 2011, through a share swap with the Bakrie Group. In early 2012, Bakrie & Brothers sold half of its 54.6% stake in Bumi PLC to Borneo Lumbung Energi & Metal, a major coking coal producer in Indonesia, because of debt problems. (ends)