Singapore, February 19, 2019 -- Moody's Investors Service has affirmed the B3 corporate family rating
(CFR) for Bumi Resources Tbk (P.T.) (Bumi).
At the same time, Moody's has affirmed the B3 rating on the
Series A and Caa1 rating on the Series B senior secured notes due 2022
issued by Bumi's wholly owned subsidiary, Eterna Capital Pte.
Ltd., and guaranteed by Bumi.
Moody's has revised the outlook on the ratings above to negative
from stable.
RATINGS RATIONALE
"The negative ratings outlook reflects our expectation that Bumi's
principal debt repayments will continue to trend lower than our previous
expectations," says Maisam Hasnain, a Moody's
Analyst.
Moody's had initially expected Bumi to repay $300-$500
million of principal under its Series A notes and Tranche A facilities
(collectively referred to as 'Tranche A') by the end of 2019,
following the completion of Bumi's debt restructuring in December
2017.
"However, we now expect Bumi to repay only around $220
million of principal by the end of 2019, primarily due to lower-than-expected
coal sales volume, working capital challenges, and a price
cap on domestic coal sales to electric utilities," adds Hasnain,
who is also Moody's Lead Analyst for Bumi.
Negative ratings pressure will persist until such time as Bumi can materially
improve its cash generation. The company is taking steps to improve
this, including reducing outstanding receivables from domestic customers.
Bumi also expects its 90% owned subsidiary, Arutmin Indonesia
(P.T.) to start paying it dividends from July 2019.
Bumi's aggregate debt balance will continue to rise, as the
pace of principal repayments on its Tranche A debt slows, eventually
leading to an unsustainable capital structure should this continue.
While Bumi's annual cash interest payments total only $30-$35
million a year, a majority of its debt has payment-in-kind
interest, which is accrued and added to the principal amount of
debt should Bumi have insufficient cash to make periodic interest payments
on these instruments.
The negative ratings outlook also captures the heightened liquidity risk
for Bumi, given large tax prepayments at it 51% owned subsidiary,
Kaltim Prima Coal (P.T.) (KPC).
Additionally, on 31 January 2019, Bumi announced that KPC
would prepay its income tax of around $212 million by April the
same year, of which, $42 million was prepaid in January
2019. This large cash payment for tax will significantly reduce
KPC's free cash available to make dividends to shareholders in the
coming months.
Bumi is currently solely reliant on dividends from KPC to meet its cash
obligations. As a result, Moody's expects Bumi's
debt repayments to be minimal, while KPC makes its large tax prepayments.
Bumi has confirmed that it has sufficient cash in its debt service reserve
account to meet its cash interest payments for the quarter ended March
2019. The company has also confirmed KPC has the flexibility of
amending the tax prepayment schedule, such that KPC will ensure
it provides sufficient cash dividends to Bumi for the parent company to
remain current on its cash interest payments.
However, Moody's is cognizant that Bumi's liquidity
risk will remain elevated during this period of large tax prepayments,
should KPC prove unable to extend its tax prepayment terms or faces unforeseen
cost overruns, which constrain its ability to make dividend payments
to Bumi.
Upward pressure on Bumi's ratings is unlikely, given the negative
outlook.
Nevertheless, the outlook could revert to stable if Bumi increases
its pace of debt reduction such that it has repaid around $300-$400
million of Tranche A principal by the end of 2019, while maintaining
prudent financial policies, with a strong adherence to its cash
account management agreement.
On the other hand, Moody's could downgrade the ratings if:
(1) Bumi's ability to generate cash to repay debt remains slower
than Moody's initial expectations; (2) KPC has difficulty prepaying
or deferring its large tax prepayments in the coming months; (3)
Bumi fails to extend its mining licenses at KPC and Arutmin on substantially
similar terms; or (4) a deviation occurs from the stated prudent
financial policies, including adherence to the terms of its cash
account management agreement.
The principal methodology used in these ratings was Mining published in
September 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Bumi Resources Tbk (P.T.), through its majority-owned
subsidiaries, is Indonesia's largest thermal coal producer.
The company produced around 63 million tons of coal for the nine months
to 30 September 2018. Its principal assets include a 51%
stake in Kaltim Prima Coal (P.T.) and a 90% stake
in Arutmin Indonesia (P.T.).
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
