Singapore, May 08, 2013 -- Moody's Investors Service has affirmed the corporate family and senior
unsecured bond rating of PT Adaro Indonesia (Adaro) at Ba1.
The outlook of the ratings is stable.
RATINGS RATIONALE
"The affirmation reflects Adaro's strong liquidity position,
track record of prudent financial management, and our expectation
that the company will focus on deleveraging such that its adjusted debt
to EBITDA ratio will return to below 2-2.3x by end 2014,"
says Simon Wong, a Moody's Vice President and Senior Analyst.
"Its rating headroom, however, has narrowed due to the
expected deterioration of its credit metrics in 2013, as a result
of weakened thermal coal prices and the continued funding support for
its parent, Adaro Energy" adds Wong, also the lead analyst
for Adaro.
Adaro's Debt/EBITDA and EBIT/Interest are projected to deteriorate
to 2.3x-2.6x and 5.2x-5.7x,
respectively, in 2013, compared to 2.0x and 7.7x
in FY2012. This is based on Moody's assumption that Newcastle
benchmark thermal coal prices will average $90 per tonne in 2013,
Adaro will successfully reduce its production cash cost during the same
period by 2-7% to alleviate its margin pressure and achieve
a sales volume of 50-53 million tonnes.
Cost cutting measures include the reduction of planned stripping ratio
to 5.75x from 6.4x in 2012, however, the benefit
of pre-stripping activity in 2012 and reducing stripping ratio
in 2013 is likely to be one-off, without compromising the
overall mining plan. The completion of an overburden crusher conveyor
system and the mine-mouth power plant in Q2 2013 will also enhance
efficiency and cost savings.
Adaro's strong liquidity profile continues to buffer it against
the weak operating environment. Adaro recorded $301 million
of cash on hand and has access to $300 million of undrawn,
committed banking facilities as at 31 December 2012. The company
is currently refinancing a bank loan of $377 million maturing in
2013 and 2014 to extend debt maturity and financial flexibility.
"Funding support for Adaro Energy and Adaro Energy's plans
to invest in greenfield independent power projects (IPPs) are also key
negative rating drivers, but we take some comfort as Adaro Energy
will significantly reduce its capex by about 60% and dividend payout
in 2013, and the Group has adopted a liquidity and capital conservation
strategy amidst the current challenging operating environment" says
Wong.
Moody's expects Adaro to fund Adaro Energy's 2013 cash requirement
with its operating cash flow and cash on hand.
Adaro is the principal cash flow generator and a borrower of record,
to fund Adaro Energy's vertical integration strategy. Funds
have been channeled to the various sister companies through Adaro Energy
in the form of dividends, intercompany loans, advances and
prepayments against services to undertake the work.
Adaro's ratings also reflect its status as one of the world's
lowest-cost producer and exporter of thermal coal, its quality
and diversified customer base, mainly comprising power utilities
in the region.
However, the ratings also recognize key challenges including various
greenfield power plant and mining projects undertaken by Adaro Energy
which could exert further pressure on the credit profile of both Adaro
Energy and Adaro. Moody's will review the financial structure
when the IPPs reach financial close and adjust Adaro Energy's total
debt as needed.
Adaro is also one of the most highly rated single commodity mining companies
globally; furthermore, its revenue base remains relatively
small and the company lacks production diversity compared with similarly
rated global peers.
The stable outlook reflects our expectation that Adaro will focus on deleveraging
and cost control, as well as exercise prudence in its financial
management.
The possibility of upward pressure is limited given the current weak market
conditions.
Downward pressure could emerge, if Adaro experiences material disruption
to its operations or industry fundamentals further deteriorate to the
extent that Adaro's ability to service its debt is weakened. Such
trends could be evidenced by adjusted debt/EBITDA rising above 2.5x
and/or EBIT/interest falling below 4x on a sustained basis.
Similarly, if Adaro Energy's adjusted debt/EBITDA rises above
3- 3.5x and/or EBIT/interest falls below 3x on a sustained
basis, Adaro's ratings would come under pressure.
Other negative rating trends include: 1) event risk as a result
of any adverse decision regarding the off-setting of VAT payments;
2) any change in laws and regulations, particularly on the mining
concessions, that would affect the business; and 3) any abrupt
change in financial or operational strategy and/or dividend policies.
The principal methodology used in this rating was Global Mining Industry
Methodology published in May 2009. Please see the Credit Policy
page on www.moodys.com for a copy of this methodology.
Adaro Indonesia is one of the largest single-site coal producers
in the southern hemisphere and one of the world's largest sub-bituminous
coal companies. It exports 77.3% of its products
to Asia, the US and Europe, while the rest is for the domestic
market.
It is wholly owned by Adaro Energy, an integrated energy group,
listed on the Indonesia Stock Exchange.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Simon Wong
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
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Philipp L. Lotter
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Moody's affirms Adaro's ratings at Ba1; outlook stable
