Singapore, October 03, 2018 -- Moody's Investors Service has assigned a Ba3 corporate family rating
(CFR) to Bayan Resources Tbk (P.T.).
The rating outlook is stable.
RATINGS RATIONALE
"Bayan's Ba3 rating reflects its growing thermal coal production
levels following the ramp-up at its Tabang mine, long reserve
life of around 30 years, as well as strong profitability,
and very low leverage," says Maisam Hasnain, a Moody's
Analyst and Lead Analyst for Bayan.
The Ba3 rating also takes into account Bayan's strong operating
profile. The company has a globally competitive cost structure,
supported by low labor costs, efficient open-cut mining operations
with a low strip ratio and mine site integrated infrastructure.
In 1H 2018, the company reported an average strip ratio of 4.1x,
cash cost of around $30 per ton and a reported EBITDA margin of
48%.
The Indonesian coal miner produced 14.8 million tons of coal in
the first six months of 2018 (1H 2018) across its five operating mines,
up 78% from the 8.3 million tons produced during the same
period last year. Bayan is on track to meet its target of up to
28 million tons for the full year. Tabang is the company's
largest producing asset and will contribute around 80% of total
volumes in 2018.
The company plans to spend approximately $255 million over the
next three years to considerably increase the capacity at its Tabang mine
to 50-60 million tons by 2021 from 25-35 million tons currently.
The expansion will be funded primarily with internal cash generated from
operations.
"As Bayan continues with the planned volume growth at Tabang,
we expect it to maintain prudent financial policies, including maintaining
low leverage and these expectations are built into the Ba3 rating,"
adds Hasnain. "Under our base case projections, Bayan's
adjusted debt/EBITDA will stay below 1.0x through 2020."
At the same time, the Ba3 rating remains constrained by a lack of
diversification, given Bayan's single commodity exposure to
thermal coal and geographic concentration, because all its mines
are located in Kalimantan.
Tabang has a relatively short track record having only started to materially
increase production in 2015. Nonetheless, Moody's believes
operational risk is mitigated by the stable production ramp-up
since 2015 and the use of experienced and reputable contract miners at
the mine site.
The stable outlook on the rating reflects Moody's expectations that
Bayan will achieve its production volume growth, while maintaining
a financial profile appropriate for its Ba3 rating.
An upgrade of the rating is unlikely over the next 12-18 months,
given Bayan's limited scale and lack of diversification.
Nonetheless, upward rating pressure could develop over the longer
term, if Bayan increases production meaningfully, improves
diversification in relation to geography and/or product, while maintaining
a strong credit profile.
Downward pressure on the rating could emerge if: 1) Bayan experiences
material disruption to its operations; 2) industry fundamentals deteriorate,
leading to a decline in earnings; or 3) there is a material change
in its underlying financial or operational strategy, including but
not limited to, higher-than-expected capital spending,
material debt funded acquisitions or a more aggressive dividend payment
policy.
Specific financial indicators that could lead to a rating downgrade include
adjusted debt/EBITDA approaching 3.5x or adjusted EBIT/interest
expense trending down to 2x.
The principal methodology used in this rating was Mining published in
September 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Listed on the Indonesian Stock Exchange in 2008, Bayan Resources
Tbk (P.T.) is engaged in surface open cut mining of coal
mines primarily located in East and South Kalimantan. It has a
90% interest in its largest producing asset at Tabang, which
will contribute around 80% of its total production volume of up
to 28 million tons in 2018.
At 31 December 2017, the company had JORC-compliant resources
of around 1.9 billion tons, of which, proven and probable
reserves accounted for 792 million tons.
Bayan's founder Dato' Low Tuck Kwong is the largest shareholder
with a 51.6% stake, Korea Electric Power Corporation
(KEPCO, Aa2 stable) owns 20% through its subsidiaries and
PT Sumber Suradaya Prima owns 10%. Bayan's management
holds a 14.5% stake and the balance is publicly owned.
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Maisam Hasnain, CFA
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
Laura Acres
MD - Corporate Finance
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