Singapore, May 20, 2021 -- Moody's Investors Service has affirmed Bayan Resources Tbk (P.T.)'s
Ba3 corporate family rating (CFR) and the Ba3 rating on its senior unsecured
notes. At the same time, Moody's has revised the outlook
to positive from stable.
"The revision in outlook to positive reflects Bayan's very
low leverage following its large notes buy back with cash and our expectation
that the company will maintain strong credit metrics with minimal reliance
on incremental debt and very good liquidity over the next 12-18
months," says Maisam Hasnain, a Moody's Assistant
Vice President and Analyst.
"Bayan's improving credit profile is supported by its increasing
thermal coal volumes following the increase in production at its Tabang
mines in recent years; the long reserve life of its mines; and
the company's solid profitability," adds Hasnain, who
is also Moody's lead analyst for Bayan.
RATINGS RATIONALE
The company has also established a track record of debt reduction,
using free cash flow to proactively repay debt ahead of schedule in recent
years. In May 2021, it upsized its tender offer to redeem
$251 million (up from the initial $220 million) of its $400
million US dollar notes with cash on hand, a credit positive.
Pro forma for this transaction, Moody's estimates Bayan's
leverage -- as measured by adjusted debt/EBITDA -- will decline
further to 0.3x from 0.8x as of March 2021. Moody's
expects the company to maintain a very low leverage of below 0.5x
over the next 12-18 months, based on a medium-term
price assumption for Newcastle thermal coal of $65-$75
per ton.
Moody's also expects Bayan will have minimal reliance on incremental
debt funding over the next few years, as the company's planned
capital spending to increase production capacity and infrastructure will
primarily be funded from internal cash flow.
Moody's also expects Bayan's construction of a 100-kilometer
haul road connecting its Tabang mines to the Mahakam River along with
a new barge loading facility, scheduled for completion in 2022,
will help increase its production capacity to around 50 million tons in
the next 3-4 years from around 33 million tons currently,
and reduce the risk of weather-related operational disruptions.
Mahakam is a larger river that is less exposed to water level fluctuations
than Bayan's current principal waterways to transport coal.
Concurrent with its tender offer for its US dollar notes, Bayan
obtained approval from noteholders to increase its dividend payment capacity
under its bond indenture by $125 million. Still, despite
the increased flexibility to pay higher dividends amid stronger cash flow
generation, Moody's expects the company to maintain its shareholder
returns over the next few years in line with its publicly stated dividend
payout policy of up to 60% of the previous year's net income.
In addition, Moody's expects Bayan's liquidity to remain very
good over the next 12-18 months, with cash on hand and projected
operating cash flow sufficient to fund its proposed capital spending,
notes buyback and dividends. The company also has around $274
million undrawn under multi-year committed working capital facilities
with four banks that help supplement its liquidity.
The ability to draw down on these working capital facilities provides
Bayan flexibility in the event of an adverse court ruling around its ongoing
litigation with a former joint venture partner, which had claimed
$153 million plus interest and costs. That said, Bayan
has yet to record any provisions against this case. According to
the company, a final ruling on this case is likely in 2021.
Thus, while Bayan's credit profile is constrained by its single-commodity
exposure to thermal coal in Indonesia, its low-cost mining
operations provide a considerable buffer against coal price downturns.
That in part reflect the company's Tabang mines, which contribute
around 85% of its coal production, and are among the lowest-cost
energy-adjusted global coal producers with a very low stripping
ratio of around 2.7x.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The positive outlook reflects Moody's expectation that Bayan will
generate strong earnings and cash flow, with a minimal reliance
on incremental debt while maintaining very good liquidity over the next
12-18 months.
Moody's could upgrade the ratings over the next 12-18 months
if Bayan continues to demonstrate conservative financial policies with
strong credit metrics and maintaining enough cash to redeem the remainder
of its US dollar bond due in January 2023.
Moody's could downgrade the rating if (1) Bayan experiences a material
disruption in its operations; (2) industry fundamentals deteriorate,
leading to a decline in earnings; or (3) the company's underlying
financial or operational strategy changes materially, including
higher-than-expected capital spending, material debt-funded
acquisitions or a more aggressive dividend payment policy.
Specific financial indicators for a downgrade include adjusted debt/EBITDA
approaching 3.5x or adjusted EBIT/interest expense trending down
to 2.0x.
The methodology used in these ratings was Mining published in September
2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1089739.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Bayan, which was listed on the Indonesian Stock Exchange in 2008,
is engaged in surface open cut mining of coal mines primarily in East
and South Kalimantan.
Bayan's founder, Dato' Low Tuck Kwong, is the largest shareholder
with a 54.7% stake. Korea Electric Power Corporation
owns 20% through its subsidiaries, PT Sumber Suradaya Prima
owns 10%, Bayan's management and founders hold an 11.8%
stake, and the balance is publicly owned.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.
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Maisam Hasnain, CFA
Asst Vice President - 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
Client Service: 852 3551 3077
Ian Lewis
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
