Singapore, January 22, 2021 -- Moody's Investors Service has assigned a Ba3 rating to Bukit Makmur
Mandiri Utama (P.T.)'s (BUMA) proposed US dollar senior
secured notes.
The rating outlook is negative.
BUMA will use the net proceeds from the notes to fully repay its outstanding
bank loans, and use the remaining proceeds to redeem a portion of
its outstanding US dollar notes.
RATINGS RATIONALE
"Although BUMA's internal cash sources will be sufficient
to meet all of its cash needs through December 2021, proceeds from
the proposed notes are essential to alleviating refinancing risk of its
US dollar notes maturing in February 2022," says Maisam Hasnain,
a Moody's Assistant Vice President and Analyst.
The Indonesian mining contractor had $337 million of US dollar
notes and $57 million outstanding of bank loans as of 31 December
2020. Moody's estimates BUMA's cash balance as of 31
December 2020 was around $100 million.
The proposed notes are currently rated in line with BUMA's Ba3 corporate
family rating (CFR) because Moody's expects the notes to constitute
the majority of BUMA's debt over the next 12-18 months.
The notes will also be issued by BUMA, which is a pure operating
company with no subsidiaries. Both of these factors mitigate subordination
risk.
However, BUMA's proposed notes could be notched down from
its CFR in the future if secured bank debt constitutes a majority of its
consolidated debt, or if the preponderance of its consolidated claims
are at future non-guarantor subsidiaries.
In January, Souls Humanity Pte. Ltd. (SHPL),
a private company controlled by Ashish Gupta and Ronald Sutardja (BUMA's
President Director), acquired an effective 16.7% stake
in BUMA from an existing shareholder consortium comprising Northstar Equity
Partners, TPG Capital, GIC Pte. Ltd. and China
Investment Corporation. There is also an option for SHPL to purchase
the remaining stake held by the consortium, which would take SHPL's
effective shareholding in BUMA to around 37.9%, making
it BUMA's largest effective shareholder.
As a result, some uncertainty remains regarding the ultimate ownership
of BUMA, which gives rise to governance risks. To that end,
BUMA's ratings would likely be downgraded if the changes in its
effective shareholding result in liquidity pressure, delays in its
refinancing plans or causes a shift from its current financial policies,
which include prioritizing positive free cash flow generation and limited
shareholder returns.
At the same time, BUMA's Ba3 CFR continues to reflect its
(1) position as Indonesia's second-largest coal mining services
contractor by overburden volume, with a well-recognized franchise
and established relationships with some of Indonesia's largest coal miners;
and (2) track record of resilient operating performance and proactive
capital management through industry downturns.
BUMA's CFR is also constrained by its (1) high level of customer
concentration, namely with Berau Coal (P.T.);
(2) geographic concentration in Indonesia; and (3) exposure to the
cyclical nature of the thermal coal sector.
"The negative outlook reflects the company's sizeable near-term
refinancing risk associated with its maturing bank loans and notes,
uncertainties around its ownership composition and future financial policies,
and execution risk regarding the company's growth plans,"
adds Hasnain, also Moody's Lead Analyst for BUMA.
The ability to sign new customer contracts will be critical for BUMA to
maintain its credit quality over the next two to three years, in
order to prevent a reduction in scale and an increase customer concentration
risk, following a material reduction in overburden removal volume
in 2020.
BUMA's recent announcement of a large contract extension with PT
Indonesia Pratama, a subsidiary of Bayan Resources Tbk (P.T.)
(Ba3 stable) is credit positive because it will help the mining contractor
offset some lost volumes following the non-renewal of a key customer
contract in 2020. BUMA has also tendered for two large coal mining
service contracts and expects the tender results to be announced within
the first half of 2021.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Moody's could downgrade the ratings if (1) BUMA is unable to raise
sufficient funds with its proposed US dollar notes to eliminate near-term
refinancing risk while maintaining an adequate liquidity buffer;
(2) its underlying financial policies were to change materially as a result
of a change in shareholding; (3) it is unable to win new contracts,
or if its expiring contracts are not renewed on similar or enhanced terms;
(4) it experiences declining earnings or profitability; or (5) payments
from its largest customer Berau Coal are delayed, such that the
average days for payment collection exceed 65 days.
Credit metrics indicative of a downgrade include BUMA's adjusted debt/EBITDA
staying above 3.5x, retained cash flow/net debt staying below
20%, or EBITA/interest expense staying below 2.0x,
on a sustained basis.
An upgrade of BUMA's ratings is unlikely over the next 12-18 months,
given the negative outlook. However, Moody's could
revise the outlook to stable if (1) BUMA improves its liquidity and addresses
its near-term debt maturities, including its US dollar bond
due February 2022; (2) it wins new mining service contracts to grow
overburden removal volumes, without weakening its credit metrics
or materially increasing execution risk, and (3) there is clarity
that the changes in its shareholding composition will not weaken BUMA's
credit profile.
In addition to having sufficient cash sources to meet its cash needs over
the next 12 months, specific indicators that Moody's would
consider for a change in outlook to stable include BUMA's adjusted
debt/EBITDA staying below 3.25x and retained cash flow/net debt
staying above 25%, on a sustained basis.
The principal methodology used in this rating was Business and Consumer
Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Established in 1998, Bukit Makmur Mandiri Utama (P.T.)
(BUMA) is a coal mining services contractor in Indonesia, providing
open-cut mining services to some of the country's largest coal
producers.
BUMA is 100% owned (less one share) by PT Delta Dunia Makmur Tbk,
an investment holding company listed on the Indonesia Stock Exchange,
which, in turn, is 38% owned by an international consortium
through Northstar Tambang Persada Ltd, comprising Northstar Equity
Partners, TPG Capital, GIC Pte. Ltd.,
China Investment Corporation, and Souls Humanity Pte. Ltd.
The remaining 62% stake in Delta is held by public and institutional
investors.
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Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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Maisam Hasnain, CFA
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
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Singapore 48623
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Ian Lewis
Associate Managing Director
Corporate Finance Group
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