Standard & Poor's: PT ANTAM Tbk. Outlook Revised To Stable From Positive; 'B' Rating Affirmed

(SINGAPORE (S&P Global Ratings) Nov. 5, 2019)--S&P Global Ratings today took the rating actions listed above. The outlook revision on ANTAM reflects our view that the ban of nickel ore exports will slow the company's deleveraging. This is because we expect capital expenditures for downstream capacity expansion to continue without the profit from nickel ore exports.

The government of Indonesia recently announced that it will bring forward the export ban to January 2020 from 2022. However, nickel miners in the country agreed last week to stop ore exports immediately. Prior to the recent regulatory change, we had expected ANTAM to receive quotas to export 5.2 million metric tons (mmt) of ore annually over the next few years. This was one of the company's most profitable segments and we had expected ANTAM to use cash flow from the operations to help fund downstream capacity expansion.

Higher price assumptions for metals will partially offset the lower cash flows from nickel ore sales. We have raised our gold price assumptions to US$1,400 per ounce, from US$1,300, and nickel price assumptions to US$15,000 per ton in 2020, from US$12,500. These higher nickel prices benefit ANTAM's downstream ferronickel profits. Additionally, we expect ANTAM will continue to sell 3 mmt-4 mmt of nickel ore domestically, and will increase bauxite production beyond previously forecast levels.

Our updated forecast shows ANTAM's debt-to-EBITDA ratio will remain above 3x in the next few years. We now anticipate adjusted debt-to-EBITDA ratio of about 3.5x in 2020 compared with our previous projection of slightly below 3x. Still, we see little change to the fundamentals of ANTAM's business, and expect the company to continue adding ferronickel capacity and beginning construction on a smelter-grade alumina refinery. This furthers its strategy of building on the company's downstream operations.

We also view ANTAM's relationship with its parent PT Indonesia Asahan Aluminium (Persero) (INALUM) as unchanged. In our view, ANTAM is strategically important to its parent, and we believe the Indonesian government would support the debt at INALUM, but that support to ANTAM would come directly from INALUM.

The stable outlook reflects our view that ANTAM will maintain its debt-to-EBITDA ratio above 3x while continuing to expand its downstream operations. We expect the company will also maintain sufficient liquidity to service its debt.

We could revise downward the stand-alone credit profile (SACP) on ANTAM if its operating performance deteriorates, resulting in debt-to-EBITDA ratio sustained above 4x and fading liquidity.

We could lower the rating on the company if an erosion in its SACP coincides with a weakening creditworthiness for the broader INALUM group. Additionally, we could lower the rating on ANTAM if its SACP is under pressure while INALUM becomes less supportive.

We could raise the rating on ANTAM if its ratio of debt to EBITDA was sustained below 3x with sufficient liquidity from higher cash flows, reduced short-term debt, or lower capital spending. We would also raise the rating if the INALUM group's consolidated cash flows and debt servicing capacity improved, or if debt levels reduce through repayment resulting in a better SACP.

ANTAM operates as a diversified mining and metals company in Indonesia and internationally. The company is involved in the exploration, excavation, processing, and marketing of nickel ore, ferronickel, gold, silver, bauxite, and coal. ANTAM is a 65%-owned subsidiary of INALUM. (ends)