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Rating Action:

Moody's revises GEAR's outlook to negative from stable; affirms B1 ratings

10 Nov 2022

Singapore, November 10, 2022 -- Moody's Investors Service has affirmed the B1 corporate family rating (CFR) of Golden Energy And Resources Ltd (GEAR), the B1 ratings on GEAR's $375 million senior secured notes due 2026, and proposed senior secured notes due 2027.

Moody's has also revised the outlook to negative from stable.

"The outlook revision to negative reflects uncertainty over potential changes in GEAR's governance practices, including financial policies and board structure, if its proposed delisting and conditional exit offer were accepted," says Maisam Hasnain, a Moody's Vice President and Senior Analyst.

"The affirmation reflects our expectation that GEAR will maintain sufficient liquidity despite the potential cash outflow associated with the cash consideration portion of its proposed distribution in specie of all of its shares in its Indonesian coal mining subsidiary, PT Golden Energy Mines Tbk (GEMS)," adds Hasnain, who is also Moody's Lead Analyst for GEAR.

RATINGS RATIONALE

On 9 November, GEAR announced that it intends to seek voluntary delisting of its shares on the Official List of the Singapore Exchange Securities Trading Limited (SGX). GEAR also announced a conditional exit offer to GEAR's shareholders from Duchess Avenue Pte Ltd (Duchess), an investment holding company wholly-owned by Star Success Pte Ltd (Star Success), which in turn is wholly-owned by the spouse of Mr. Indra Widjaja, a controlling shareholder of GEAR's parent company. The long-stop date for these transactions is April 2023.

Once complete, these transactions, which are subject to conditions including but not limited to, approval from independent shareholders and regulators, will significantly increase concentrated ownership risk at GEAR. In addition, GEAR will have an untested track record in terms of its financial policies and risk tolerance under the sole ownership of Duchess.

The semi-annual and annual financial reporting requirement under the indenture governing GEAR's US dollar notes will ensure transparency over its financial performance. Also, its key subsidiary, Stanmore Resources Limited is listed on the Australia Stock Exchange. However, the reporting and disclosure requirements for GEAR if it is a private company, will be less stringent than that for listed public companies.

Nonetheless, GEAR's B1 CFR remains supported by its 64% ownership of Stanmore Resources Limited, an Australian metallurgical coal producer with low-cost operations, stable production volumes and a long reserve life.

GEAR's B1 CFR is also premised on Moody's expectation that, if the conditional exit offer is accepted, Duchess will not seek to extract incremental cash from GEAR to provide additional liquidity for itself.

The maintenance of a large cash balance at the holding company level is increasingly critical for GEAR if the potential dividend in specie of GEMS takes place. GEMS has historically been a very reliable dividend contributor, even during commodity price downturns.

Moody's expects GEAR to maintain good liquidity over the next 18-24 months. GEAR's standalone cash balance of $94 million as of 30 June 2022 and Moody's expectation for GEAR to receive $240-$270 million in dividends from GEMS between June 2022 and March 2023 will be sufficient to meet GEAR's cash needs. These include the redemption of up to $94 million of its residual 2026 notes after the exchange offer, and up to a $146 million payment to GEAR's minority shareholders assuming all of them elect to receive cash instead of GEMS shares as part of the dividend in specie, as per Moody's estimates.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade is unlikely over the next 12-18 months given the negative outlook.

Nevertheless, Moody's could revise the outlook to stable if there is (1) no substantial change to GEAR's business performance or governance practices if the delisting and acceptance of the conditional exit offer occur, (2) clarity over GEAR's business strategy if its pending transactions, including its planned distribution of its GEMS stake, do not proceed, and (3) if GEAR continues to maintain good liquidity at the holding company level.

Conversely, Moody's could downgrade GEAR's ratings as a result of (1) aggressive financial policies, including large debt-funded investments, high shareholder returns, or the company operating with a substantially lower holding company cash balance than historical levels; (2) weakening industry fundamentals or a higher cash usage at Stanmore, which reduces the cash flow available for paying dividends to GEAR; (3) additional funding support rendered to its subsidiary and joint venture investments; or (4) debt at Stanmore and its subsidiaries not declining.

Specific indicators that Moody's would consider for a downgrade include interest coverage at GEAR on a standalone basis falling below 1.5x or consolidated adjusted debt/EBITDA rising above 3.0x.

The principal methodology used in these ratings was Mining published in October 2021 and available at https://ratings.moodys.com/api/rmc-documents/76085. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Listed on the Singapore Stock Exchange, Golden Energy And Resources Ltd (GEAR) is an energy and resources company with investments in coal and gold. Following the potential distribution of PT Golden Energy Mines Tbk, an Indonesian thermal coal producer, GEAR's primary investments are a 64% effective stake in Australian metallurgical coal producer Stanmore Resources Limited, and a 50% joint venture stake in Australian gold producer Ravenswood Gold Mine.

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 on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 issuer/deal page for the respective issuer on https://ratings.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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Maisam Hasnain, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
71 Robinson Road #05-01/02
Singapore, 068895
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Vikas Halan
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
71 Robinson Road #05-01/02
Singapore, 068895
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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