PEFINDO lowers PT Ricobana Abadi’s rating to “idBB+”

(August 7, 2020)--PEFINDO has lowered the ratings of PT Ricobana Abadi (RICO) and its Medium-Term Notes (MTN) I Year 2017 to “idBB+” from “idBBB-”. The rating downgrade reflects our expectation that the Company’s business and financial performance will be weaken in the near term as its customers, Berau Coal and Gunung Bara Utama, decided to lower its production volume in 2020 as a result of prolonged low coal price. We expect the Company to book significantly lower production volume and revenue in 2020 amid high debt balance. The outlook for the corporate rating is “stable”.

An obligor rated idBB has a somewhat weak capacity to meet its long-term financial commitments relative to that of other Indonesian obligors. The obligor faces ongoing uncertainties or exposure to adverse business, financial or economic conditions which could result in an inadequate capacity on the part of the obligor to meet its financial commitments. The Plus (+) sign indicates that the rating is relatively strong within the respective rating category.

The corporate rating reflects the Company’s limited customer diversification, small market position in the coal mining contractor industry, and exposure to the fluctuation of coal price. However, those concerns are partially offset by RICO’s experienced management team and adequately conservative business decisions.

The rating could be raised if RICO strengthens its market position in the coal mining contractor industry as reflected by gaining new contracts as well as diversifying customer profile which could significantly increase its revenue and reduce its dependency on certain customers. This should also be supported by improving profitability margins and financial profile with debt to EBITDA ratio below 3.0x on a sustained basis. However, the rating could be lowered if the Company’s revenue and EBITDA generation in 2020 are significantly below our projection. We could also lower the rating if it aggressively finances its expansion with substantially larger debt than projected, without being compensated by stronger revenue and/or EBITDA generation.

Established in February 1981, RICO was previously engaged in heavy equipment rental and spare parts supply. Since 2007, RICO has been operating fully as a coal mining contractor, with activities including overburden (OB) removal, coal hauling, and heavy equipment rental. It has been awarded mining contracts from companies, such as PT Berau Coal, PT Tambang Batu Bara Bukit Asam, and PT Mahakam Sumber Jaya. RICO is an indirect subsidiary of PT SMR Utama Tbk (SMRU) through PT Ricobana. As of March 31, 2020, its shareholders were PT Ricobana (99.99%) and Mr. Wijaya Mulia (0.01%). (ends)