JAKARTA (TheInsiderStories) – Fitch Ratings has revised Indonesia-based Geo Energy Resources Limited’s Long-Term Issuer Default Rating to ‘CC’, from ‘C’ after failed to run the tender offer of the bond. The agency also revised the rating on the outstanding senior unsecured guaranteed notes of its subsidiary, Geo Coal International Pte. Ltd., to ‘CC’, from ‘C’, with a Recovery Rating of ‘RR4’.
The revision follows Geo’ failure to achieve the required minimum 75 percent note-holder acceptance of its tender offer and consent solicitation for the removal of the mandatory repurchase clause. Its reported that only 13.8 percent of notes, or US$21.3 million, were validly tendered.
“We conclude that Geo‘ tender offer was unsuccessful, as per our Distressed Debt Exchange Rating Criteria, as the company continues to face heightened default risk in the next 12 months. As a result, we have revised its rating to ‘CC’, the level at which Geo was rated before the tender offer, since there has been no significant change in its underlying credit profile,” said the statement.
Fitch rated, the company will be required to buy back notes in May 2021 as per the note terms, as it is unlikely to meet the condition of 80 million tones (MT of coal reserves, triggering a put option. Fitch expects the miner’ liquidity to fall considerably short of the $132.7 million principal due on the May 2021 put date if the put option is triggered in April 2021 and does not foresee timely refinancing for the producers.
Geo is exploring the unchartered southern part of its PT Tanah Bumbu Resources (TBR) mine in an attempt to boost reserve. However, even if it avoids the put option through an asset acquisition or reserve addition at its TBR mine, liquidity on hand will still be insufficient to repay the principal on its bond maturity in October 2022.
Geo announced yesterday that the ultimate shareholder of PT Titan Infra Energy (TIE) has filed a legal case against Geo’ subsidiaries and other parties. It claims that the conditional sale as well as the purchase and coal off-take agreements between TIE and Geo’ subsidiaries were against the interest of TIE’ shareholders.
The company says it has not received a legal notice on this issue and is monitoring the situation. Geo made an advance payment of $32 million to TIE in 2019 for coal off-take in 2020. Fitch will monitor the situation and assess impact on Geo upon greater clarity.
Geo’ Indonesian coal-mining peer, PT Golden Energy Mines Tbk (IDX: GEMS) (B+/Stable), has a stronger credit profile with a larger reserve base, better cost position and comfortable liquidity profile, which justifies Geo’s multiple-notches lower rating.
Altura Mining Ltd.,’ (CCC+/Stable) rating was affirmed in June after the company completed a funding package that included a three-year extension of its loan facility maturity and standby equity of A$50 million until 2023, which it will use to fund working capital and finance costs over the next 12 months.
Fitch believes this will provide a sufficient liquidity buffer and help the company manage short-term requirements. Geo has no reliable alternative sources to cover the significant shortfall on its US dollar maturities, justifying its multiple-notch lower rating.
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