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15 Dec 2005
MOODY'S CHANGES ANTAM'S B1 LOCAL CURRENCY RATING OUTLOOK TO POSITIVE
Hong Kong, December 15, 2005 -- Moody's Investors Service has today changed the outlook for PT Aneka
Tambang (Persero) Tbk's (Antam) local currency B1 corporate family
rating to positive from stable. The B2 foreign currency bond rating
remains unchanged with a positive outlook, which is in line with
the positive outlook for Indonesia's sovereign rating.
The outlook change is prompted by the Moody's view that expected
production growth at Antam's FeNi III facility -- an additional
15,000 tonnes to its annual nickel capacity -- is likely to
benefit the company's operational profile and increase its cash
flow contribution. Commercial operations are expected to begin
at the end of Q12006. Such development would potentially strengthen
the baseline credit assessment of Antam and therefore its rating.
The ratings assigned to Antam continue to reflect the application of Moody's
new rating methodology for government-related issuers, "The
Application of Joint Default Analysis to Government-Related Issuers",
published in April 2005. In accordance with this methodology,
Antam's rating is based on a combination of the following inputs:
(i) a baseline credit assessment (BCA) of "6" (on a scale
of 1 to 6, where 1 represents the lowest credit risk); (ii)
the B2 local currency rating of the Indonesian government, the support
provider; (iii) low dependence; and (iv) medium support.
The BCA of 6 is underpinned by Antam's strong operating track record
in Indonesia, its diversified product portfolio, favorable
reserve life and the integrated nature of its nickel business.
At the same time, it considers Antam's exposure to the volatile
commodity sector, arising from its nickel and gold operations,
and moderate financial leverage. Other factors include the company's
rising cost structure, albeit competitive relative to global players,
and the evolving nature of the regulatory environment in Indonesia.
The BCA also incorporates Moody's expectation that Antam,
which plans to invest in 49% ownership of the Tayan chemical grade
alumina project, will achieve a satisfactory implementation of this
JV agreement and arrange appropriate long-term funding through
project financing. Although any contribution from Tayan may possibly
only begin in 2009, the project is likely to enhance longer-term
growth and optimize the use of the company's bauxite resources.
Antam's total debt as of Sep 2005 was Rp1.8 trillion, down
Rp300 billion from end-2004, improving leverage to 40.5%
from 50.5%, primarily the result of buying back US$25
million in USD bonds. Antam's adjusted financial leverage
(adjusted for Tayan's project finance debt), however,
will increase from 2006 onwards but Moody's draws comfort from the
expected rises in production and cash flow contributions as well as the
solid, albeit moderating, state of nickel prices over the
next 12-18 months. The total cost for the 300,000-tonne
Tayan facility is US$220 million.
Moody's also notes that Antam has signed a Memorandum of Understanding
with POSCO to complete a feasibility study on a proposed US$650
million 30,000 tonnes/year ferronickel project (FeNi IV) by end-2006.
Antam plans to fund this investment through project finance, similar
to that of the Tayan project (potential debt-to-equity ratio
of 65:35). Moody's says that this longer-term
investment is sizable in nature and will raise Antam's adjusted
financial leverage, if materialized. However, the investment
will enlarge the company's ferronickel/nickel production capacity
and achieve further economies of scale. Moody's also draws
comfort that Antam has demonstrated track record in managing similar projects,
such as FeNi II & FeNi III.
Low dependence reflects the fact that Antam's product prices are
set in the international market and its products are largely exported,
such that correlation with the financial strength of the Indonesian government
is low. Medium support reflects the 65% stake owned by the
government and the likelihood that Antam will remain majority state-owned
in the near to medium term.
Moody's would consider an upgrade in the next 12-18 months
if there is strengthening in the BCA due to i) a successful commissioning
of FeNi III and ii) a satisfactory execution of the JV agreement,
along with the emergence of a solid and sustainable financial profile.
The latter would include 5-year average for EBIT interest coverage
of 3-4x and Operating Cash Flow minus Dividends-to-Adjusted
Debt of 7-10%. A material increase in the government's
stake might also prompt a review of Antam's rating as it might impact
the support level.
On the other hand, outlook for local currency rating would revert
to stable if there is a weakening in the BCA, due to i) industry
fundamentals deteriorate beyond Moody's expectations, or higher-than-anticipated
investments in the Tayan and FeNi IV projects emerge, resulting
in a deterioration in debt protection measures with 5-year average
for EBIT interest coverage less than 2x and Operating Cash Flow minus
Dividends-to-Adjusted Debt below 5%; or ii)
major problems or delays emerge in the commercial operation of FeNi III.
A sell-down of the government's majority ownership might
prompt a review of its rating, if such sell-down was part
of a broader trend evidencing a change in the government's strategy
over Antam. Such development might impact Moody's assessment
on the support level.
Antam, headquartered in Jakarta, Indonesia, is listed
on the Indonesian and Australian stock exchanges and is 65% government-owned.
The company is involved in the exploration and production of nickel ore,
smelting of ferronickel, exploration, and production and refining
of gold ore and silver, bauxite, iron sands. Antam
currently has an annual nickel capacity of 10,000 tonnes.
About 85% of its total revenue are generated from the export market.
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121
Senior Vice President
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121
No Related Data.
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