Singapore, August 02, 2011 -- Moody's Investors Service has assigned a B1 corporate family rating
to Berau Coal Energy Tbk ("BCE").
At the same time, Moody's has withdrawn the B1 corporate family
rating of Berau Coal PT ("Berau Coal"), a 90%
owned subsidiary and major operating entity of BCE.
Moody's believes that since BCE is the listed holding company,
its corporate family rating better reflects the group's consolidated
credit profile than that of Berau Coal. Moody's has therefore
withdrawn Berau Coal rating for business reason.
Moody's has also affirmed the B1 senior secured bond rating on the USD450
million, five-year notes issued by Berau Capital Resources
Pte Ltd, which is wholly owned by BCE. The notes are guaranteed
by BCE and its subsidiaries, including Berau Coal.
The ratings outlook is stable.
RATINGS RATIONALE
"BCE's rating reflects the majority ownership of Berau Coal,
one of the world's lowest-cost producers and exporters of coal,"
says Simon Wong, a Moody's Vice President and Senior Analyst,
adding, "Berau Coal has a track record of consistent production
growth and its customer base consists of large utilities with excellent
payment records."
"Moody's expects BCE to gradually reduce leverage over the
medium term despite its expansionary capex plans. Nevertheless,
Moody's would like to see a period of stability in ownership and greater
clarity in strategic direction," adds Wong, who is also
the Lead Analyst for BCE.
In April, Bumi Plc completed its acquisition of a 75% stake
in BCE from PT Recapital Advisors and was required under the Indonesian
stock exchange rules to make a mandatory cash offer for BCE's shares.
Bumi Plc increased its stake in BCE to 84.7% after the expiry
of the cash offer in June 2011.
Despite the low level of public float, BCE is expected to maintain
its listing status.
Moody's is cognizant that BCE will be subjected to increasingly
stringent corporate governance standards, particularly after the
premium listing of its parent Bumi Plc on the London Stock Exchange in
June 2011.
However, Bumi Plc, which also holds a 25% stake in
another Indonesian coal mining company -- Bumi Resources
(Ba3/stable) -- has a rather short operating history in
its current form. Its future operations and financial strategy
for the group could have a material impact on BCE's capital structure.
The ratings also consider BCE's lack of diversification --
given its single concession and single product -- and its exposure
to commodity cycles, as well as the uncertainty in the regulatory
environment. It also faces a high level of concentration risk,
as its top ten customers account for approximately 74% of revenue.
The stable outlook reflects Moody's expectations that BCE will successfully
implement its business plan and maintain its competitiveness in the near
to medium term.
Upward rating pressure may emerge if BCE expands its production capacity
as planned, while maintaining the current prudent financial profile.
Moody's would also like to see a track record of stability in BCE's financial
profile and clarity in its strategic direction under the new ownership.
Downward pressure on the rating could emerge if industry fundamentals
deteriorate, leading to a decline in free cash flow that would constrain
BCE's ability to make scheduled debt payments at the holding company level.
Some of the indicators Moody's would consider are adjusted consolidated
debt/EBITDA rising above 4.0x or adjusted consolidated EBIT/interest
expense falling below 2.5x.
Other negative rating triggers include: 1) A material change in
Bumi Plc's financial policy, resulting in a deterioration
in BCE's capital structure, 2) Any adverse decision regarding
its ability to offset VAT payments, 3) Any change in laws and regulations,
particularly with regard to the mining concessions, which would
adversely affect the business.
The principal methodology used in rating BCE was Moody's Global Mining
Industry, published in May 2009.
Berau Coal is Indonesia's fifth-largest producer and exporter of
thermal coal. It operates three active mines (Lati, Sambarata
and Binungan) at a single site in East Kalimantan. It had estimated
resources of 1.4 billion tons, and probable and proven reserves
estimated at 346 million tons.
BCE is 84.7% owned by Bumi Plc, which is in turn 54.6%
owned by Bakrie & Brothers. Bakrie & Brothers has pledged
a majority of its stake in Bumi Plc as collateral to a loan that it has
undertaken.
PT Recapital Advisors -- through Mutiara --
owns (i) 4.3% of BCE's issued share capital,
and (ii) 20.4% of Bumi Plc's voting share capital as well
as 13.2% of Bumi Plc's issued share capital. Mutiara
received USD739 million in cash for the transaction with Bumi Plc and
used the cash to pay down a substantial portion of its debt.
REGULATORY DISCLOSURES
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.
Information sources used to prepare the rating are the following:
parties involved in the ratings, parties not 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
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a rating 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 Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
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Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
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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.
Singapore
Simon Wong
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
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Hong Kong
Gary Lau
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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Moody's assigns B1 rating to Berau Coal Energy, outlook stable