Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

Show me your friends and I'll tell you who you are, or so the saying goes. In a similar vein, bond markets in Asia are about to test how judgmental portfolio managers can be.

Indonesian mining contractor PT Bukit Makmur Mandiri Utama, or Buma, is wrapping up investor meetings Thursday with an eye to selling as much as $500 million in dollar bonds. The company works mainly in the coal industry, which in Asia is responsible for the lion's share of U.S. currency note defaults over the past decade.

Squarely to Blame
Mining companies are responsible for more than half of missed note payments in Asia over the past decade
Source: Bloomberg

However as a contractor, Buma's cash flows are a little more predictable. Fitch Ratings Ltd. and Moody's Investors Service Inc. have it at three levels below investment grade. Buma's parent, PT Delta Dunia Makmur, which as the 100 percent owner of Buma essentially is Buma for all intents and purposes, hasn't had a full year of negative operating cash flow since 2009.

Steady Stream
Delta Dunia, the parent of Buma, hasn't had a full year of negative operating cash flow since 2009, in spite of a 33 percent drop in coal prices over the past two years
Source: Bloomberg

Delta Dunia's credit metrics have also been improving. Net debt-to-Ebitda went from 3.6 times at the end of 2013 to 2.5 times at the end of September, while total debt was 71 percent of net assets, a four percentage point improvement.

Yet, while Delta Dunia hasn't done investors any wrong, it remains to be seen whether bondholders can contain their focus to financials. For better or worse, Delta Dunia has deep ties with one company that's left creditors reeling.

PT Berau Coal Energy will be instantly recognizable to anyone familiar with Asian debentures as the company that defaulted on $800 million of notes in 2015 and is now offering 18 cents on the dollar or new securities that pay 1 percent a year and can't be redeemed before 2027 plus zero-coupon 2032 notes.

According to a November presentation, Buma gets 55 percent of its revenue from Berau and recently had to amend two contracts related to work being done for the coal miner that were initially signed in 2014 and are valued at about 39 trillion rupiah ($2.9 billion).

For an attractive enough yield, bond investors may be willing to turn a blind eye to Buma's connections. The question is, at what cost?

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Delta Dunia is the holding company of PT Bukit Makmur Mandiri Utama. Buma, acquired in 2009, is Delta Dunia's primary operating asset.

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Christopher Langner in Singapore at

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