Moody's downgrades Bumi Resources to Caa1; on review direction uncertain
Tuesday, July 23 2013 - 03:13 PM WIB
The ratings remain on review, with direction uncertain.
The senior secured bonds are issued by Bumi Capital Pte Ltd and Bumi Investment Pte Ltd, both of which are wholly owned subsidiaries of Bumi Resources.
"The downgrade reflects the increased refinancing risk for Bumi Resources. The deadline in August for the refinancing of the $150 million term loan is less than a month away, and the company has yet to complete the potential monetization of its non-core assets," says Simon Wong, a Moody's Vice President and Senior Credit Officer.
Moreover, $360 million of loans at PT Bumi Resources Minerals Tbk (BRM, unrated) -- in which Bumi Resources has an 87.09% stake -- will mature in September. These loans are non-recourse to Bumi Resources.
As of end-March 2013, Bumi Resources had a cash balance of $90 million and restricted cash of $109 million on a consolidated basis.
The ratings are on review owing to the uncertainty and lack of visibility related to the monetization of Bumi Resources' non-core assets, particularly its stake in BRM. Successful monetization could result in ratings being upgraded again, while failure could see further downward ratings pressure.
"While the sale of assets could be credit positive because it will alleviate some near-term liquidity concerns and improve the company's credit metrics, the timing and proceeds of such a sale are currently unclear," says Wong, also the Lead Analyst for Bumi Resources.
"We expect interest costs to remain high even if Bumi Resources refinances its upcoming debt maturities, given the ongoing uncertainty over its separation from Bumi Plc, which owns a 29.2% stake in the firm. We also note that the company will face significant debt maturities again in 12 to 18 months," he adds.
Bumi Resources' debt maturities in 2H 2014 include $375 million of convertible bonds and $150 million of the loan from China Development Bank that falls due in 3Q 2014, and $600 million of the loan from China Investment Corporation (CIC) that matures in 4Q 2014.
The timeframe for the separation of Bumi Resources from Bumi Plc remains unclear. In July 2013, Bumi Plc announced that it had agreed to sell its 29.2% stake in Bumi Resources to Bakrie group for $501 million. Bakrie group would subsequently sell its 23.8% stake in Bumi Plc to an affliate of PT Borneo Lumbung Energi & Metal Tbk (unrated).
Because this new proposed transaction differs from the deal approved by shareholders in Bumi Plc's Extraordinary General Meeting in June 2013, it could face resistance from some of Bumi Plc's shareholders. In February 2013, Bumi Plc signed an agreement to divest its entire 29.2% stake in Bumi Resources to Bakrie group for $270 million and buy back Bakrie group's 23.8% stake in the company.
Furthermore, Moody's expects little improvement in Bumi Resources' ability to generate internal cash from its coal operations in 2H 2013, as market conditions are likely to remain challenging. With the Newcastle coal price falling below $80 per ton in July and seaborne thermal coal supply continuing to outpace demand, the company's selling prices are likely to remain correspondingly weak.
Moody's review will focus on Bumi Resources' ability to: (1) refinance its scheduled near-term maturities, and (2) reduce its debt level through asset sales.
Moody's would consider upgrading the ratings if Bumi Resources can raise funds or refinance its maturing debt in 2013 and 2014 in a timely manner, and lower its leverage by selling assets. Credit metrics that could trigger an upgrade include consolidated debt/EBITDA of below 5.0x and consolidated EBITDA/interest of above 1.0x-1.5x on a sustained basis.
Moody's would consider downgrading the ratings if Bumi Resources' liquidity position or operating performance deteriorates further, or it does not make any progress in addressing its maturing debt.
The principal methodology used in these ratings 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 Resources produced 66 million tons of coal in 2011 and which accounted for approximately 19% of Indonesia's total coal production. (ends)