S&P: PT Bumi Resources Rating Lowered to 'CCC' on Growing Liquidity Risks; Remains on Watch Negative

(Aug. 5, 2013) -- Standard & Poor's Ratings Services said today that it had lowered its long-term corporate credit rating on Indonesia-based coal producer PT Bumi Resources Tbk. to 'CCC' from 'B-'.

At the same time, we lowered the rating on the senior secured notes the company guarantees to 'CCC' from 'B-'. We also lowered our long-term ASEAN regional scale rating on Bumi to 'axCCC' from 'axB-'. All the ratings remain on CreditWatch, where they were placed with negative implications on Sept. 26, 2012.

"We lowered the ratings on Bumi to reflect our view of the company's weakening liquidity and growing challenges in refinancing its debt maturities over the next six months," said Standard & Poor's credit analyst Xavier Jean. "We believe Bumi's capital structure is unsustainable unless the company restructures or reduces its debt through asset sales."

We understand that Bumi is yet to tie-up funding to refinance its August and September maturities, although it is still in discussions with lenders. In our base case, Bumi will refinance US$150 million debt due in August 2013. Still, the company faces refinancing risk for the US$350 million debt due in September 2013 at its majority-owned subsidiary PT Bumi Resources Minerals Tbk. (BRM). We understand that Bumi does not guarantee BRM's debt. However, we believe a default on the BRM debt would jeopardize Bumi's ability to refinance its future debt maturities through the sale of BRM assets.

We believe Bumi's liquidity will remain "weak," as defined in our criteria, beyond September 2013. This is given the company's existing amortizing debt and high interest payments over the next six months.

"Bumi's internal cash flows will likely remain weak as soft coal prices hit operating cash flows, and interest and tax payments remain high," said Mr. Jean. The likelihood of a default on the company's amortizing debt or interest payment over the next six months is therefore increasing, in our opinion.

We believe Bumi will find it difficult to sell stake in BRM in the next six months. Regulatory approvals could delay asset disposal. We also remain unsure about Bumi's willingness to dispose of these assets at potentially distressed prices and use the proceeds to reduce debt.

We note that Bumi's financial covenants restrict its ability to borrow. Bumi is in breach of its incurrence covenants and cannot raise debt, except to repay existing indebtedness.

The CreditWatch on Bumi reflects the one-in-two likelihood that we could lower the ratings in the next three months. We aim to resolve the CreditWatch placement after we have better clarity on Bumi's ability to refinance its September debt maturity.

We could lower the rating to 'CCC-' if Bumi's liquidity does not improve materially and we believe that a default, distressed exchange, or redemption is inevitable within the next six months.

We could raise the rating, most likely by one notch, if Bumi executes on its debt reduction plan through asset sales within the next three months. (ends)