Singapore, December 15, 2017 -- Moody's Investors Service has upgraded the Corporate Family Rating (CFR)
of Bumi Resources Tbk (P.T.) (Bumi) to B3 from Ca.
At the same time, Moody's has assigned a B3 rating to the
$487.7 million Series A and a Caa1 rating to the $522.4
million Series B senior secured notes due December 2022 issued by Eterna
Capital Pte. Ltd., a wholly-owned subsidiary,
and guaranteed by Bumi.
The outlook on all ratings is stable.
RATINGS RATIONALE
On December 12, Bumi announced that it had completed its Indonesian
court-approved debt restructuring exercise, with its lenders
to exchange existing debt for new debt and securities.
Following its restructuring, Bumi has exchanged around $4.2
billion of outstanding debt into new notes and bank loans ($1.6
billion) maturing in December 2022, contingent value rights ($100
million), mandatory convertible bonds ($631 million) maturing
in December 2024, and additional equity ($2.0 billion).
"The upgrade of Bumi's rating to B3 reflects its emergence
from bankruptcy with a lower debt balance and the absence of material
debt maturities until December 2022," says Maisam Hasnain,
a Moody's Analyst.
The debt restructuring will also improve Bumi's liquidity profile
and reduce its cash interest burden as only around $600 million
of total debt post restructuring has a cash interest payment requirement,
with an adjustable coupon depending on coal prices.
Of the total 7.5% coupon on this debt, the cash coupon
is currently 6.5% based on current coal prices. This
translates to around $40 million of annual cash interest payments.
Bumi will also pay the residual 1% coupon if it has sufficient
cash available.
Bumi's remaining debt shows payment-in-kind (PIK)
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.
Bumi's B3 CFR is also supported by its position, through its
majority-owned subsidiaries PT Kaltim Prima Coal (KPC) and PT Arutmin,
as Indonesia's largest thermal coal producer, with steady
production levels despite market cyclicality, and the overhang from
a lengthy restructuring process.
Bumi targets to produce 86 million tonnes (MT) of coal in 2017,
in line with production of 87MT in 2016. The company also plans
to increase production in 2018, driven by 8MT of higher grade coal
which has restarted at Arutmin's Satui mine.
"Given Moody's medium term price considerations for thermal
coal, we anticipate Bumi should be able to repay $300-$500
million of principal under its Series A notes and Tranche A facilities
(currently around $600 million) by end-2019,"
adds Hasnain, also Moody's lead analyst for Bumi.
Under the terms of the restructuring, Bumi's lenders have
appointed KPMG Services Pte. Ltd. as an independent monitoring
accountant. Its role includes overseeing Bumi's adherence
to the terms under its cash account management agreement (CAMA) with lenders,
which mandates the deployment of cash dividends received by Bumi from
Arutmin and KPC.
The appointment of a monitoring accountant and the waterfall mechanism
under the CAMA will provide protection to lenders in ensuring greater
transparency in cash movements and prioritizing payments towards debt
servicing.
"Bumi's B3 rating is premised on our expectation of a strict
adherence to the mechanisms under its cash waterfall, and any indication
of cash leakages would result in negative ratings pressure,"
adds Hasnain.
The compounding effect of PIK interest payments to debt levels would result
in a considerable increase in leverage in the event that cash flows proved
insufficient for servicing all interest payments. In addition,
Bumi would also face material refinancing risk in December 2022 when its
debt matures.
There also remains a high degree of event risk, given the expiry
of Arutmin's coal contract of work (CCoW) in November 2020.
Negotiations for the extension of the CCoW can only start two years before
its expiry and, while it is our current view that an extension on
similar terms will be forthcoming, we remain cognizant of the regulatory
risk and the impact on Bumi's credit profile and ratings should
that renewal not materialize in a timely fashion.
Bumi's Series B senior secured notes are rated one notch lower than
Bumi's CFR and its Series A senior secured notes to reflect its
relative subordination as per the terms of the cash waterfall whereby
interest on Series B notes will only be paid once the principal on Series
A is fully repaid.
The ratings outlook is stable, reflecting Moody's expectation that
Bumi will maintain very prudent financial policies as it executes its
business strategy, with a focus on ramping up production volumes
and a commitment to reducing absolute debt levels over the next 12-18
months.
Upward rating pressure is limited following Bumi's recent emergence
from debt restructuring. However, upward momentum on the
ratings could develop over time if Bumi exhibits a sustained improvement
in its financial profile with an established track record of adherence
to the principals under its cash waterfall, including timely debt
repayments as expected.
Downward ratings pressure could emerge if (1) Bumi's ability to
generate cash to repay debt in line with expectations is weakened by a
sustained decline in coal prices; (2) it fails to extend the Arutmin
CCoW on substantially similar terms; or (3) a deviation occurs from
stated prudent financial policies, including adherence to the terms
of its CAMA.
The principal methodology used in these ratings was Global Mining Industry
published in August 2014. Please see the Rating Methodologies page
on www.moodys.com for a copy of this methodology.
Bumi Resources Tbk (P.T.) (Bumi), through its majority-owned
subsidiaries, is Indonesia's largest thermal coal producer.
The company produced 63 million tons (MT) of coal for the nine months
ended September 2017, with its principal assets include a 51%
stake in PT Kaltim Prima Coal (KPC) and a 70% stake in PT Arutmin.
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
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
