Moody's upgrades Bumi's Series B notes to Caa3; places all ratings on review for upgrade

(Singapore, October 13, 2022) -- Moody's Investors Service has upgraded the rating on the Series B backed senior secured notes issued by Bumi Resources Tbk (P.T.)'s wholly-owned subsidiary, Eterna Capital Pte. Ltd., to Caa3 from Ca.

At the same time, Moody's has placed the following ratings on review for upgrade: Bumi's Caa3 corporate family rating (CFR), and the Caa3 ratings on its Series A and Series B backed senior secured notes issued by Eterna Capital.

The outlook has been changed to ratings under review from negative.

"The review for upgrade reflects Bumi's planned repayment of substantially all its debt using proceeds from its planned $1.6 billion share issuance that was recently approved by its shareholders," says Maisam Hasnain, a Moody's Vice President and Senior Analyst.

"The Series B notes have been upgraded in line with Bumi's CFR to reflect the notes' position as the most senior debt in Bumi's capital structure, following the imminent repayment of the remaining principal under the Series A notes before the new share issuance is complete," adds Hasnain, who is also Moody's lead analyst for Bumi.

RATINGS RATIONALE

The review follows the announcement on 11 October 2022 that Bumi had obtained shareholder approval to raise $1.6 billion through the issuance of 200 billion new shares[1]. The shares will be acquired by entities controlled by the Bakrie Group, Anthoni Salim and Agoes Projosasmito. Bumi expects to receive cash for the new shares by 19 October.

Bumi has stated that it will use the share issuance proceeds to repay all its debt (excluding the mandatory convertible bonds (MCB)), ahead of the December 2022 maturity date. The company has already announced that it will redeem all its Series B notes on 10 November 2022[2].

The planned debt repayment will abate near-term default risk as Bumi would otherwise have been unable to repay around $1.6 billion of its outstanding debt as of October 2022 maturing in December 2022, and had insufficient time to implement a back-up refinancing plan in the two months prior to the debt maturity.

Following the debt repayment, the only remaining external debt Bumi will have at the holding company level is the outstanding principal and accrued interest on its MCBs, which will mature in December 2024. Bumi will have sufficient cash to service the 6% coupon on the MCBs and repay the accrued interest at maturity. The remaining principal on the MCBs will be converted to equity.

Subsequently, Bumi's credit quality will benefit from a significantly improved capital structure with minimal debt, supported by its position, through its majority-owned subsidiaries PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia, as Indonesia's largest thermal coal producer.

Nonetheless, there is limited clarity around the company's future financial policies, growth strategies and board composition following the sizeable share acquisition by existing shareholders -- the Bakrie Group, and new shareholders -- entities controlled by Salim and Projosasmito, which will also own a significant stake in Bumi.

Moody's review will focus on (1) Bumi's progress in raising the $1.6 billion new share issuance proceeds and repaying debt; and (2) ascertaining Bumi's financial policies, growth plans and governance structure over the next few years following the change in its shareholding composition. Moody's expects to conclude the review within the next 60-90 days.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's could upgrade the ratings by up to three notches if Bumi repays all its debt that was due to mature in December 2022, and if its growth plans and financial policies will not subsequently strain its capital structure and expose it to further liquidity or refinancing risk.

The ratings could be downgraded if the new share issuance is delayed and the risk of a default intensifies, or if recovery prospects for the company's creditors weaken.

The principal methodology used in these ratings was Mining published in October 2021 and available at https://ratings.moodys.com/api/rmc-documents/76085. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com. (ends)