Moody’s Says Bumi ‘Most Vulnerable’ Coal Miner on Debt LoadDavid Yong
PT Bumi Resources doesn’t have enough cash to meet more than $1 billion of obligations within the coming 18 months, making it the weakest of four coal miners in Indonesia, according to Moody’s Investors Service.
The Jakarta-based company is highly leveraged, with $375 million of convertible bonds due Aug. 5 and the first semi-annual payment of $150 million on a China Development Bank Corp. loan due Aug. 6, the ratings company said in an Aug. 1 report. Bumi is “most vulnerable” to weakening leverage metrics as shrinking cash flow puts miners at risk of negative rating actions, Singapore-based analyst Brian Grieser said.
“Bumi does not have the internal capacity to fund these upcoming maturities,” Grieser said in the report. “In the likely absence of fresh funds, we believe Bumi will be left with two options. Sell further stakes in its two main coal mines, or get lenders to modify terms or extend maturities.”
Bumi, part of Indonesia’s Bakrie family group of companies, is holding talks with bondholders and lenders to help ease $4.2 billion of short-term liabilities. It said in a stock exchange statement today it’s negotiating to revise terms on its 9.25 percent convertible bonds, and has a deadline of Aug. 12.
The coal mining company sweetened a debt-exchange offer for its convertible notes last month, sending a letter to noteholders with new terms that include repaying the securities in April 2018, three years sooner than suggested in an initial proposal June 5.
Bumi’s 12 percent notes due November 2016 rose to 46.265 cents on the dollar as of 6:40 p.m. in Singapore, Bloomberg-compiled prices show. They’ve fallen for the past seven consecutive weeks. The 9.25 percent bonds were untraded, after gaining 0.21 cents to 40 cents on the dollar Aug. 1.
Bumi, the most indebted coal producer in Asia, also plans to split its 9.25 percent debt into convertible and straight debentures, and pay an 8.5 percent coupon on the latter, according to the letter to bondholders, a copy of which was obtained by Bloomberg News. That’s higher than the 7 percent offered in Bumi’s June 5 proposal.
That proposal failed at a noteholders meeting in Singapore June 20 because the gathering didn’t achieve a quorum. Bumi now has a five-day grace period from tomorrow to reach an agreement on the revised terms.
Adaro, Indika Energy
Two other Bakrie-linked companies have missed payments on $535 million of dollar bonds since March 2013.
PT Adaro Indonesia has the strongest liquidity position due to minimal planned capital expenditure, a healthy cash balance and a manageable debt maturity profile, Moody’s said.
PT Indika Energy has a “liquidity buffer sufficient to fulfill its debt and interest obligations over the next two years,” Grieser said. “However we expect the company to face a considerable cash drain in 2014-15 such that its cash balance could fall to just above $200 million at the end of 2015, from $311 million as of March 2014.”
PT Berau Coal Energy’s recently announced plans to refinance its $450 million of 12.5 percent senior secured notes due July 2015 should eliminate near-term refinancing risk, according to the ratings company. Failure to complete this refinancing would lead to a ratings downgrade, it said.
Moody’s rates Adaro at Ba1, its highest junk rating, and both Indika Energy and Berau Coal three steps lower at B1. Bumi is graded Ca, or 10 levels below investment grade. Ca means a company is likely in, or very near, default, with some prospect of recovery of principal and interest.
Moody’s expects benchmark Newcastle thermal coal prices to average $75 to $80 a tonne in 2014 and doesn’t anticipate a meaningful rebound in 2015. Indonesia is the world’s biggest exporter of thermal coal.
“We expect debt leverage of our four rated Indonesian coal producers to deteriorate beyond their rating parameters, increasing the risk of negative rating actions over the next 12 to 18 months.”