Singapore, April 11, 2011 -- Moody's Investors Service has today upgraded the corporate family
and senior secured ratings on PT Indika Energy Tbk to B1 from B2.
The outlook for the rating remains positive.
Moody's has also assigned a provisional (P)B1 rating with a positive
outlook to the proposed seven-year senior notes, to be issued
by Indo Energy Finance B.V. and unconditionally guaranteed
by Indika, PT Indika Inti Corpindo, the Tripatra Entities
and Indo Energy Capital B.V. The provisional status of the
notes will be removed upon completion of the issuance.
RATINGS RATIONALE
"The upgrade reflects Indika's strong operating performance
and improved financial metrics, driven primarily by dividends from
Kideco, which have allowed the company to lower its leverage,
as measured by adjusted debt/EBITDA, to 2.5x for 2010,"
says Simon Wong, a Moody's Vice President and Senior Analyst.
"Furthermore, the acquisition of MBSS -- PT Mitrabahtera
Segara Sejati -- has broadened Indika's coal value chain,"
says Wong, also lead analyst for Indika.
While Indika's adjusted debt/EBITDA will rise to approximately 3.6x
for 2011 as a result of its debt-funded acquisition of MBSS as
well as the group's debt-funded capital expenditure programs,
Moody's expects Indika to resume its de-leveraging in 2012
due to the full-year contribution from MBSS and the ongoing business
expansion of Petrosea.
MBSS, a coal transport & logistics services company, has
short- to medium-term contracts covering approximately 95%
of its fleet of tug boats, barges, and floating cranes.
Furthermore, the contract terms include minimum tonnage and fuel-cost
pass-through provisions, which adds to the certainty of revenue
and cash flow from operations.
However, Moody's is concerned about MBSS's high revenue
concentration to its top three customers, which, although
declining, still accounted for 75.7% of MBSS's
2010 revenue, as well as the large amount of upfront capex needed
to meet the growth in both domestic coal production and demand for logistic
support vessels. Furthermore, weather conditions could delay
its loading and unloading operations and the amount of tonnage it transports.
Indika's proposed exchange of the USD250 million notes due 2012
with the new seven-year senior notes should space out its debt
maturity profile and further strengthen its liquidity profile.
The acquisition loans (totalling USD 180 million) will fall due in April
2012, and the company has planned to pay them down with internal
cash flow as well as the proceeds of the planned re-listing of
Petrosea in the second of 2011.
"Moody's recognizes that the company plans to further expand
its existing businesses and at the same time seek acquisition opportunities
to expand its coal value chain," adds Wong.
"Although this may present a high degree of event risk, Moody's
takes comfort from management's conservative track record and reasoned
acquisition strategy."
Indika's ratings are underpinned by the recurring cash dividend stream
from its 46% stake in Kideco. Kideco is the third-largest
coal producer in Indonesia and has maintained a very strong financial
profile. Indika's acquisition of Petrosea, a mining
services company, has reduced its exposure to commodity cycles,
given that most of its revenues are contractual and are premised on expectations
of continued growth in Indonesian coal output.
However, the ratings also reflect Indika's high reliance on
the dividend income from Kideco to service its debt, as well as
the inherent volatility in that dividend flow due to coal price movements.
Other concerns include the volatility of cash flow of Indika's EPC
tender business, the execution risk of Indika's expansion
plans, and the uncertainty in the regulatory environment for the
coal mining industry in Indonesia.
The positive outlook reflects the expectation that Indika will resume
its de-leveraging in 2012. It also reflects the broadened
operating profile following the acquisition of Petrosea and MBSS,
as well as the expectation that Indika will maintain its prudent and conservative
approach to future acquisitions.
The rating could experience upward rating pressure if Indika can 1) increase
its stake in Kideco to above 50% or 2) maintain its conservative
financial strategy, particularly with regard to its acquisition
plan, even as it integrates MBSS into the wider energy business.
Overall integration is likely to result in an improvement to financial
leverage, as measured by total debt/EBITDA (including dividends
from associates) falling below 2.5x and EBIT/interest increasing
above 4.0x.
Downward pressure on the rating could emerge in the event of 1) a reduced
dividend flow from Kideco; 2) an inability by Tripatra (a 100%
owned subsidiary), Petrosea, or MBSS to win tenders and contracts
as forecast; 3) any deterioration in the relationship between Samtan
(49% shareholder in Kideco) and Indika; 4) any evidence of
cash leakage; and 5) political and economic instability re-emerging
in Indonesia, resulting in a loss of orders for Indika's key
businesses. Specific indicators Moody's would look for include
total debt/EBITDA (including dividends from associates) rising above 4.0x
and EBIT/interest falling below 2.75x.
Indika's ratings were assigned by evaluating factors we believe
are relevant to the credit profile of the issuer, such as 1) the
business risk and competitive position of the company versus others in
its industry; 2) its capital structure and financial risk; 3)
the projected performance over the near to medium term; and 4) management's
track record and tolerance for risk. These attributes were compared
against other issuers both in and outside Indika's core industry,
and Indika's ratings are considered comparable to those of other
issuers of similar credit risk.
The last rating action was taken on 6th November 2009 when the provisional
status was removed from Indika's US$230 million B2 rated
bond.
Indika is a listed integrated energy group based in Indonesia.
Its principal investment is its 46% stake in Kideco, Indonesia's
third-largest domestic coal producer by tonnage. In addition,
Indika is involved in the EPC and O&M businesses through its wholly
owned subsidiary, Tripatra. In July 2009, Indika also
completed its acquisition of a 98.6% stake in Petrosea,
one of Indonesia's sixth-largest mining services contractor.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
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
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
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 Indika to B1, outlook positive