Moody's revises Bumi's ratings outlook to stable from negative

Singapore, May 12, 2011 -- Moody's Investors Service has affirmed PT Bumi Resources Tbk's (Bumi) Ba3 corporate family rating and Bumi Investment Pte Ltd's Ba3 senior secured notes rating. The notes benefit from joint and several unconditional and irrevocable guarantees from Bumi and subsidiaries, and rank pari passu to all existing and future senior unsecured claims of the issuer and guarantors.

At the same time, Moody's has revised the outlook of both ratings to stable from negative.

"The revised outlook reflects Bumi's improved operating performance, resulting in adjusted debt/EBITDA falling to 3x by end-2010, and Moody's expectation that the company will continue to deleverage in 2011 and 2012," says Simon Wong, a Moody's Vice President and Senior Analyst. "Furthermore, the successful completion of its refinancing exercise in 2010 has improved its liquidity and reduced refinancing risk."

The Ba3 rating reflects Bumi's majority ownership in two of Indonesia's largest thermal coal mines. Both mines show long reserve lives, low production costs, well-established operations, and records of consistent production growth.

While its holding company-level debt burden is high, this position is partially ameliorated by the low leverage at the coal mines and the cash flows they generate. These cash flows are caught under Bumi's Cash Distribution Agreements and as such provide some protection to creditors on debt servicing. But final repayment risk continues to reside with the holding company.

The ratings also consider Bumi's geographic concentration and single commodity focus, issues pertaining to the regulatory environment, and the emerging market risks arising from operating in Indonesia (Ba1/stable).

Moreover, Bumi's substantial expansion into metal ores and oil and gas in other non-investment grade jurisdictions raises potential execution, political and expropriation risks.

Vallar PLC, completed the acquisition of a 25% stake in Bumi in March 2011, through share swap with the Bakrie Group. Vallar PLC has stated an intent to increase its stake in Bumi to 50% during 2011 via further share swaps with willing Bumi shareholders.

Vallar PLC, which is currently debt-free, is subject to the more stringent corporate governance standards of the London Stock Exchange, as well as having better access to the international capital markets.

However, Vallar PLC has a rather short operating history and its future strategy could have a material implication on Bumi's operations and capital structure.

The stable outlook reflects Moody's expectations that Bumi will continue to deleverage and closely manage its liquidity, while executing its business plan and maintaining its competitiveness in the near to medium term.

Upward rating pressure may emerge if Bumi successfully expands its production capacity, while demonstrating a sustainable reduction of its total debt and improvement to its liquidity profile. Credit metrics that will support an upgrade include adjusted consolidated Debt/EBITDA lower than 2x and adjusted consolidated EBIT/Interest expense higher than 4x.

Downward rating pressure could emerge if production at the coal companies faltered, such that Bumi was unable to deliver on its projections and specifically its deleveraging plans, or if it deviates from the business plan and strategy currently contemplated as part of the rating. Indicators Moody's would consider include adjusted consolidated debt/EBITDA rising above 3.0x or adjusted consolidated EBIT/interest expense falling below 3x.

Other negative rating triggers include 1) a material change in Vallar PLC's financial policy, resulting in deterioration to Bumi, or the coal company'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 and which would adversely affect the business.

The principal methodology used in rating Bumi was the Global Mining Industry Methodology, published May 2009.

Please see ratings tab on the issuer/entity page on Moodys.com for the last Credit Rating Action and the rating history.

Established in 1973 and listed on the Jakarta Stock Exchange in 1990, Bumi is Indonesia's largest thermal coal producer and one of the top three largest thermal coal exporters globally. Through its principal assets (65% stake in PT Kaltim Prima Coal and 70% stake in PT Arutmin), Bumi accounts for approximately 21.8% of Indonesia's 2010 total coal production. (end of release)