Singapore, May 12, 2011 -- Moody's Investors Service has upgraded to B1 from B2 its corporate
family rating on PT Berau Coal (Berau).
Moody's has also upgraded to B1 from B2 its senior secured bond rating
on the USD450 million five-year notes issued by Berau Capital Resources
Pte Ltd, which is wholly owned by PT Berau Coal Energy (BCE),
the parent of Berau. The notes are guaranteed by BCE and its subsidiaries,
which includes Berau.
The outlook for all these ratings is stable.
RATINGS RATIONALE
"The upgrade reflects Berau's strong operating performance
and improved financial metrics, driven primarily by lower adjusted
debt, resulting in adjusted debt/EBITDA falling to 2.2x by
end-2010," says Simon Wong, a Moody's Vice
President and Senior Analyst.
In 2010, PT Bukit Mutiara, BCE, and Berau, paid
off USD580 million in vendor notes, as well as a USD300 million
subordinated loan and a USD300 million bank loan, decreasing the
group's adjusted consolidated debt by USD1.18 billion,
to USD817 million at 31 December 2010.
The B1 ratings also reflect Berau's status as one of the world's
lowest-cost producers and exporters of coal, a track record
of consistent production growth, and the quality of its customer
base, which comprise large utilities with excellent payment records.
"While Moody's expects Berau to deleverage further over the
next 12 to 18 months, Moody's would like to see a period of stability
and consistency in the ownership as well as increased clarity in Vallar
PLC's financial policy and overall strategic direction for Berau,"
says Wong, who is also lead analyst for Berau.
"Berau has seen its controlling shareholder changed three times
over the past 18 months and experienced volatility in its adjusted leverage
over the same period."
Berau (through BCE) is now consolidated with Vallar PLC, which is
currently debt-free, subject to the more stringent corporate
governance standards of the London Stock Exchange, and has better
access to the international capital markets.
However, Vallar PLC has a rather short operating history and its
future operations and financial strategy for the group could have a material
impact on Berau and BCE's capital structure.
The ratings also considers the company's lack of diversification (given
its single concession and product), its exposure to commodity cycles,
and the uncertainty in the regulatory environment, as well as the
high level of concentration risk, as its top ten customers account
for approximately 75% of revenues.
The stable outlook reflects Moody's expectations that Berau will successfully
implement its business plan and maintain its competitiveness in the near
to medium term.
Upward rating pressure may emerge if Berau expands its production capacity
as planned, while maintaining the current prudent financial profile
at both its and BCE's levels. Moody's would also like
to see a track record of stability in Berau's financial profile
and clarity of 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 constrains
Berau's ability to make its scheduled debt payments at the holding company
level. Indicators Moody's would consider include 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 Vallar
PLC's financial policy, resulting in deterioration to BCE
or Berau's capital structure; 2) any adverse decision regarding
the off-setting of VAT payments; or 3) any change in laws
and regulations, particularly with regard to the mining concessions,
that would adversely affect the business.
The principal methodology used in rating Berau was Moody's Global Mining
Industry, published in May 2009.
Vallar PLC completed its acquisition of a 75% stake in BCE in April
2011, and PT Recapital Advisors -- through Mutiara --
owns 20.4% of Vallar's voting share capital as well
as 13.2% of Vallar PLC's issued share capital.
Mutiara received USD739 million in cash for the transaction, which
was used to pay down a substantial portion of Mutiara's debt.
Vallar PLC is required under the Indonesian stock exchange rules to make
a mandatory cash offer and purchase up to 9.74% of BCE shares.
The change of control clause has triggered a tender offer to buy back
the senior secured bond, although the offer lapsed on 31 March 2011,
with no redemption as the market price was above the redemption price.
Bakrie & Brothers, which currently own 54.6% of
Vallar PLC's issued share capital, has pledged a majority
of its shares as collateral to a loan to Bakrie & Brothers.
Berau 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 at 31 December 2009.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
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in assigning a credit rating is of sufficient quality and from sources
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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 ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
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Please see the ratings disclosure page on our website www.moodys.com
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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 upgrades Berau rating to B1, outlook stable