Indika Bond Slump Signals Two-Level Downgrade, CreditSights SaysDavid Yong
Bond traders are pushing PT Indika Energy’s notes deeper into junk as weak coal prices dim the outlook for dividends from its mining units, according to CreditSights Inc.
The Indonesian company’s $300 million 7 percent notes due May 2018 have dropped 4.35 cents in the past six days to 84.792 cents on the dollar, Bloomberg-compiled prices show. Yields jumped to 12.613 percent from 10.869 percent. The securities have lost 10 percent in the past month as corporate dollar debt in the Southeast Asian nation gained 0.6 percent, a JPMorgan Chase & Co. index shows.
“The market seems to be pricing a two-notch downgrade into current yields,” Singapore-based analysts Raghav Bhandari and Sandra Chow wrote in a note published yesterday. “A recovery in coal prices would provide a welcome boost to the sector but we doubt prices will rebound fast enough to turn around the performance of distressed names.”
Indika’s debentures, sold at par in 2011, are ranked B1 by Moody’s Investors Service and B+ by Fitch Ratings Ltd., or four levels below investment grade, both with a negative outlook. Asian benchmark coal prices remain near the lowest since 2009, a level that was reached earlier this month.
Rewina Isnanto, a Jakarta-based spokeswoman for Indika, couldn’t immediately comment on CreditSights’ analysis when reached by phone today.
CreditSights lowered its recommendation on Indika’s bonds to marketperform from outperform on Nov. 5. Marketperform means returns are expected to be in line with Asian high-yield U.S. dollar debt, according to the research firm.
The analysts prefer notes sold by property developers to coal or industrial companies because the credit strength of most Indonesian high-yield issuers will be stable to weaker in 2015 as growth in Southeast Asia’s biggest economy slows.
Three Singapore-based units of PT Bumi Resources have filed for protection from creditors in Singapore and New York over the past two weeks while London-listed Asia Resource Minerals Plc hired advisers before $450 million of debt issued by its unit, PT Berau Coal Energy, comes due in July 2015.
Indika’s 46 percent owned unit PT Kideco Jaya Agung will probably report lower earnings in 2014, eroding its potential dividend payout by 40 percent to about $52 million versus $88 million in 2013, CreditSights said in the report, citing discussions with the Jakarta-based group.
CreditSights raised its recommendation on developer PT Alam Sutera Realty’s notes to outperform from marketperform, making the January 2019 debentures and March 2020 securities among its top picks. It also favors debt issued by industrial-estate builder PT Kawasan Industri Jababeka.
Indonesia’s housing market should improve in 2015, supported by pent-up demand and political stability, the analysts said. Both developers expect a 10 to 20 percent increase in sales next year, CreditSights said.