PEFINDO: PT Ricobana Abadi rated “idBB+”, outlook revised to negative

(December 10, 2021)--PEFINDO has affirmed its “idBB+” ratings for PT Ricobana Abadi (RICO) and its Medium-Term Notes (MTN) I Year 2017. However, we revise the outlook for the corporate rating to “negative” from “stable” in anticipation of lower production volume growth in the near term on the back of limited production capacity of its current fleets and challenges to procure new fleets during the extraordinary rise in the coal price. This may affect RICO’s ability to generate adequate cash flow to finance its operating activities and repay its financial liabilities including maturing MTN of IDR 400 billion in December 2022, amid challenges in restructuring or refinancing its MTN.

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 RICO’s limited customer diversification, exposure to financing risk in the near term, and exposure to the fluctuation of coal prices. However, those concerns are partially offset by the Company’s experienced management team and adequately conservative business decisions.

The rating may be lowered if the Company’s business performance weakens as indicated by lower profitability and followed by weakening capital structure and cash flow protection measures. We could also lower the rating if the Company fails to find options to settle its maturing MTN. The outlook may be revised to stable if RICO could secure its financing source to support its business operation and the concerns over the settlement of its maturing MTN has been resolved. It should be accompanied by improving profitability as well as capital structure and cash flow protection measures on a sustainable basis.

Established in February 1981, RICO was previously engaged in heavy equipment rental and spare parts supply. Since 2007, it 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 and PT Gunung Bara Utama. RICO is an indirect subsidiary of PT SMR Utama Tbk (SMRU) through PT Ricobana and is ultimately owned by PT Trada Alam Minera Tbk (TRAM). As of September 30, 2021, its shareholders were PT Ricobana (100,00%) and Mr. Wijaya Mulia (0.00%). (ends)