S&P: PT Bumi Resources Tbk. Rating Lowered to 'CC' on Proposed Debt-For-Equity Swap;Outlook Negative

(SINGAPORE (Standard & Poor's) Oct. 15, 2013) -- Standard & Poor's Ratings Services said today that it had lowered its long-term corporate credit rating on PT Bumi Resources Tbk. (Bumi) to 'CC' from 'CCC'. The outlook is negative.

At the same time, Standard & Poor's lowered the rating on senior secured notes that Bumi guarantees to 'CC' from 'CCC'. We also lowered our long-term ASEAN regional scale rating on Bumi to 'axCC' from 'axCCC'. We removed all the ratings from CreditWatch, where they were placed with negative implications on Sept. 26, 2012.

"We lowered the rating on Bumi because we view the company's recent agreement with its key lender China Investment Corp. (CIC) as a distressed debt exchange equivalent to a de-facto default," said Standard & Poor's credit analyst Xavier Jean.

Under the agreement, CIC will convert part of the US$1.3 billion principal amount of its loan to Bumi into equity stakes in Bumi and its subsidiaries and the rest into debt with longer tenor and lower interest rates than in the original terms and conditions.

In accordance with our criteria for distressed debt exchange, we believe that, in the absence of an agreement with CIC, there was a good possibility of a payment default by Bumi over the next few months. This is because Bumi's internal cash flows are likely to be insufficient to service the debt. The rating on Bumi is lower than the 'B-' threshold for considering such an exchange as distressed, according to the criteria.

We believe that Bumi will benefit from lower interest expense, lower leverage, and smoother refinancing once the distressed offer is complete. However, its EBITDA could be lower as a result of the sale of equity ownership in the coal operating companies.

We believe the deal will take time because it still needs multiple approvals. Bumi still has significant refinancing needs in the near term, with more than US$600 million of debt maturing in the rest of 2013, and US$660 million due in 2014. Such refinancing would be very difficult if the CIC deal is still pending.

We assess Bumi's liquidity as "weak," as our criteria define the term. We expect the company's ratio of sources of funds to uses to be materially less than 1.0x in 2013.

"The negative outlook reflects the likelihood that we will lower the rating on Bumi to 'SD' (selective default) once the company's proposed transaction with CIC is completed," said Mr. Jean. "We will then review Bumi's credit profile after assessing the company's operating cash flows, debt maturity profile, debt interest coverage and leverage ratios, and liquidity."

If the proposed transaction is not completed, we will reassess Bumi's credit profile and the likelihood of similar offers. (ends)