Moody's: Indonesian coal producers pressured by weak coal prices

(August 04, 2014) -- Moody's Investors Service says that depressed coal prices will pressure Indonesian miners' credit quality over the next 12-18 months, weakening leverage as margins and cash flows contract. Miners with strong liquidity are best positioned to weather the prolonged downturn.

"Robust liquidity, well spread out debt maturities, low capital spending requirements, and conservative financial policies will provide rated producers with the headroom needed to weather what we expect will be a prolonged cyclical trough for the Indonesian coal sector," says Brian Grieser, a Moody's Vice President and Senior Analyst.

Grieser was speaking on Moody's just-released report "Indonesian Coal Producers: Liquidity Will Determine Ability to Weather Downturn".

Moody's report assesses rated entities' ability to fund their debt servicing and capital expenditure requirements through 2015 from their cash flow from operations and cash on hand.

Specifically, Moody's notes that among its four rated Indonesian coal producers, Adaro Indonesia Tbk (P.T.) (Ba1 stable) has the strongest liquidity profile.

"Adaro has the largest liquidity buffer to fund ongoing operations, with minimal planned capex and a manageable debt maturity profile. We expect the company to keep a healthy cash balance and to maintain its credit protection policies over the next 12-18 months," says Grieser.

While Indika Energy Tbk (B1 negative) has good liquidity for the next 12-18 months, Moody's expects the company to face a cash drain in 2014-15.

Similarly, Berau Coal Energy Tbk (P.T.) (B1 negative) also has good liquidity, but faces near-term refinancing risk. Its recently announced plans to refinance its $450 million, 12.5% senior secured notes due July 2015 should eliminate this risk.

Bumi Resources Tbk (P.T.) (Ca stable) is the weakest positioned with inadequate liquidity. The company faces substantial near-term maturities of more than $1 billion over the next 12 months, and does not have the internal capacity to fund these maturities. (ends)