Rating firm downgrades KPC's outlook

Rating agency Standard & Poor's Ratings Services said today it affirmed its 'BB-' corporate credit rating on coal miner PT Kaltim Prima Coal (KPC) and revised its outlook to negative from stable.

"The negative outlook reflects concern that KPC's financial risk profile could weaken if the company significantly increases its debt level to help finance the acquisition of KPC's shares by a consortium led by PT Borneo Lumbung Energi," said Standard & Poor's credit analyst Nancy Koh.

Borneo Lumbung is an affiliate of Indonesian investment bank Renaissance Capital.

The revised outlook follows the recent announcement by PT Bumi Resources Tbk. (Bumi) to sell its entire 95% stake in KPC and the wholly owned PT Arutmin Indonesia to the consortium for more than US$3 billion.

"Considering the sizeable acquisition amount involved, it is possible for IndoCoal Resources (a special purpose vehicle for Bumi) to consider refinancing the US$600 million securitized notes issue (due 2012), which contains a covenant limiting KPC's ability to incur additional debt. If this materializes, the new parent may increase KPC's borrowing to help finance its acquisitions and KPC's financial risk profile could deteriorate," said the agency.

Standard & Poor's said it has yet to receive details of the transaction as well as information on future strategic and financing plan for KPC. "We will assess KPC's credit rating as the process gathers momentum and as details of the business and financial risk profiles of the company under the new shareholder become more apparent," added Koh.

"Standard & Poor's believes that KPC's operations should continue to function as normal. The company has benefited in the past year from firm product prices of coal, and demand growth should continue, given a growing preference by various Asian countries in using coal for power generation and its relatively low cost, compared with oil and natural gas."(alex)