Singapore, August 17, 2012 -- Moody's Investors Service has downgraded the corporate family rating and
senior secured bond rating of Bumi Resources to B1 from Ba3.
The ratings outlook is stable.
RATINGS RATIONALE
"The downgrade reflects the expected deterioration of Bumi's credit
metrics and liquidity as a result of Bumi's (1) weakening operating
margins, (2) large capex plans, as well as (3) debt and interest
servicing burdens," says Simon Wong, a Moody's Vice President
and Senior Analyst.
"The company's plans to prepay part of the China Investment
Corporation (CIC) debt of up to USD600million by end-2012 are insufficient
for Bumi to maintain a financial profile in line with its previous ratings,"
says Wong, who is also Moody's lead analyst for Bumi.
"Furthermore, it has to rely on the sale and settlement of
Bumi's other financial assets, rather than operating cash
flow, and the timing of which remains uncertain," adds
Wong. "Moody's is also concerned with scheduled debt
maturities of over USD300m in 2013, which will increase Bumi's
liquidity pressure."
"Bumi's EBITDA margin is expected to decline to around 22-24%
for 2012, from 32.9% in 2011, owing to the continued
rise in the company's production costs and lower average selling
prices," adds Wong. The margin pressure and slower-than-expected
production ramp-up have limited its operational cash flow generation.
Although Indonesian miners are one of the lowest-cost coal producers
in the world, their production costs have escalated in recent years
due to a combination of higher oil prices, rising labor and contractor
costs and increased stripping ratios to facilitate their growth.
Bumi's production costs, excluding royalties, increased
26% in FY2011 compared to FY2010. Moody's expects
production cost increases to moderate in 2012 to low double-digits
due to Bumi's cost control strategy.
Moody's expects the benchmark Newcastle thermal coal price to average
between USD90 and USD95 per ton in 2012, which is well below the
USD120 per ton posted in 2011. Furthermore, coal prices are
unlikely to materially rebound in 2013, unless the demand and supply
balance of coal significantly improves.
Moody's also expects coal demand from China to slow in 2H 2012 due
to high inventory levels and as the price arbitrage window with respect
to seaborne and domestic (China) coal has closed since late July.
"Despite the weakened operating environment, Bumi appears
to be continuing its capacity expansion plan to 110 million tons by 2014.
Its budgeted capex of USD350 million this year is expected to increase
in 2013 and 2014, adding further pressure on its credit profile,
should coal prices remain weak," says Wong.
The B1 corporate family and senior secured ratings also reflect Bumi's
(1) majority shareholdings in PT Kaltim Prima Coal and PT Arutmin Indonesia,
two of the world's lowest-cost producers and exporters of coal;
(2) Bumi's long-life coal reserves based on current and anticipated
production levels; (3) customer base quality, which includes
the large utilities that have excellent payment records; 4) well-established
operations, with a track record of consistent production growth.
The rating takes into consideration key challenges such as (1) Bumi's
geographic concentration and single-commodity focus in terms of
current revenue generation; as well as (2) regulatory issues arising
from operating in Indonesia (Baa3/Stable).
Moody's also has concerns about Bumi's substantial expansion over the
past few years into metal ores, oil and gas, and other non-investment
grade jurisdictions that confers potential execution, political,
and expropriation risks.
Another concern of Moody's is Bumi's high debt levels and
liquidity risk at the holding company level, given the structural
separation from the underlying coal assets, which drive the group's
cash flow. This will give rise to ongoing refinancing risk at the
Bumi level, notwithstanding the protections that exist in the cash
distribution account.
Upward rating pressure is limited in the near term. It could evolve
if the company reduces its debt level on a sustained basis, such
that adjusted consolidated debt/EBITDA remains below 3.0x or adjusted
consolidated EBIT/interest expense stays above 2.5-3x.
Downward pressure could emerge, if Bumi continues with its capacity
expansion plans while industry fundamentals remain weak, or if it
was unable to reduce its holding company leverage. Downward pressure
could also emerge, if Bumi does not develop timely and concrete
plans to refinance the scheduled maturities due in Q3 2013.
Indicators Moody's would consider include adjusted consolidated debt/EBITDA
rising above 4.5x or adjusted consolidated EBIT/interest expense
staying below 1.5x-2x.
Other negative rating triggers include: (1) a material change in
Bumi PLC's financial policy, resulting in deterioration in
Bumi's capital structure; (2) any adverse decision regarding
off-setting of value-added tax payments; or (3) any
change in laws and regulations, particularly with regard to mining
concessions, that would adversely affect the business.
The principal methodology used in rating Bumi was Moody's Global Mining
Industry, published in May 2009. Please see the Credit Policy
page on www.moodys.com for a copy of this methodology.
PT Bumi Resources Tbk is Indonesia's largest thermal coal producers,
and one of the top three largest thermal coal exporters globally.
Through its principal assets (65% stake in PT Kaltim Prima Coal
and 70% stake in PT Arutmin), Bumi produced 66 million tons
of coal in 2011, which accounted for approximately 19% of
Indonesia's 2011 total coal production. Its non-coal resource
holding company, Bumi Resource Mineral was listed on the Indonesian
Stock Exchange on December 9, 2010. Bumi currently owns 87.09%
of Bumi Resource Mineral.
Bumi PLC, previously known as Vallar PLC, completed the acquisition
of a 25% stake in Bumi in March 2011, through a share swap
with the Bakrie Group. In early 2012, Bakrie & Brothers
sold half of its 54.6% stake in Bumi PLC to Borneo Lumbung
Energi & Metal, a major coking coal producer in Indonesia,
because of loan problems.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
The ratings have been disclosed to the rated entities or their designated
agent(s) and issued with amendment resulting from that disclosure.
Information sources used to prepare each of the ratings are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
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.
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
SUBSCRIBERS: (65) 6398-8308
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 downgrades Bumi Resources to B1, outlook stable
