Moody's: Further delay in ARM-Bakrie separation credit negative for Berau

(Singapore, March 03, 2014) -- Moody's Investors Service says that the further delay in the Asia Resource Minerals Plc (ARM, unrated)-Bakrie Group (unrated) separation is credit negative for Berau Coal Energy (P.T) (BCE, B1 negative), but has no immediate impact on its ratings.

The latest completion date for the ARM-Bakrie Group separation has now been scheduled for 21 March at the original terms of the transaction as approved by ARM's shareholders in December 2013. This is the third deadline given to the Bakrie Group who finally appears to have secured the $501 million needed to finance its purchase of ARM's stake in Bumi Resources (Ca stable). As part of this transaction, the Bakrie Group will also be selling its ownership in ARM to Samin Tan's RACL and Borneo Group.

BCE, a subsidiary of ARM (formerly Bumi Plc), faces a material maturity in July 2015 when its $450 million 12.5% senior secured notes come due.

"We believe shareholder uncertainty at the ARM level will complicate any refinancing plans for BCE. Accordingly, if the shareholder overhang is not resolved and/or the notes are not refinanced by the end of the second quarter, the likelihood of a ratings downgrade driven by growing refinancing risk will increase, particularly given the mounting operational pressure from the prolonged weakness in thermal coal prices," says Brian Grieser, a Moody's Vice President and Senior Analyst.

"While refinancing risk will rise in coming months, we derive comfort from BCE's high cash balances which will tide the company over should it require a longer time to secure the refinancing or decide to reduce the size of the notes offering from the existing $450 million outstanding," adds Grieser, who is also lead analyst for BCE.

As at 30 September 2013, BCE had cash and cash equivalents of $392 million on its balance sheet. We note the call premium on these notes dropping to 103.125% in July 2014.

Terms of the original separation deal were for ARM to sell the company's 29.2% stake in Bumi Resources to the Bakrie Group for $501 million, of which $50 million has already been placed in escrow and would be turned over to BCE if the separation is not completed. In turn, the Bakrie Group will sell its 23.8% stake in ARM to affiliated companies of ARM chairman Samin Tan for $223 million.

BCE is an investment holding company listed on the Indonesian Stock Exchange. It has a 90% interest in PT Berau Coal (unrated), Indonesia's fifth-largest producer and exporter of thermal coal. Berau operates three active mines -- Lati, Sambarata and Binungan -- at a single site in East Kalimantan. It has estimated resources of about 2.2 billion tons, with probable and proven reserves estimated at 509 million tons (mt). (ends)