JAKARTA (TheInsiderStories) – Indonesian miner, PT Bayan Resources Tbk (IDX: BYAN) planned notes with worth up to US$600 get Ba3 rating from Moody’s Investor Service, said the agency on Jan. 8. The outlook stable.
The Notes have a tenure seven years with an indicative interest as much as 10 percent per annum. As plan, the company will use most of the funds to refinance its debt and working capital of the company and its subsidiaries.
Moody’s said, the Ba3 rating on the proposed notes is in line with Bayan‘ Ba3 corporate family rating, as the presence of upstream guarantees from major subsidiaries mitigates structural subordination risk for bondholders.
“The proposed bond issuance will support Bayan’s liquidity and lengthen its debt maturity profile,” says Maisam Hasnain, a Moody’s assistant VP and analyst in a written statement.
He continued, the miner’ rating reflects its strong profitability, supported by its low-cost structure and growing thermal coal production following the ramp-up at its Tabang mines, which have a long reserve life.
At the same time, the coal producer’ Ba3 rating is constrained by its single-commodity exposure to thermal coal and the geographic concentration of its mines in Kalimantan. The rating also considers the company’ exposure to environmental, social and governance risks as follows.
Bayan faces elevated environmental risks associated with the coal mining industry, including carbon transition risks as countries seek to reduce their reliance on coal power. However, this risk is somewhat mitigated as the miner’ customers are primarily located in Asia, a region with growing energy needs.
The company owned by Dato’ Low Tuck Kwong will also remain exposed to weather-related risks, and in particular to the risk of dry weather that can lead to low water levels in the Kedang Kepala River and Belayan River, which are currently the company’ principal waterways for the transport of coal to transshipment points from its Tabang mine.
Bayan is also exposed to social risks associated with the coal mining industry, including health and safety, responsible production and societal trends. The founder, who holds an approximate 54 percent stake in the company.
However, this risk is somewhat balanced by Bayan’ listed status, the presence of other large shareholders including Korea Electric Power Corporation (KEPCO, Aa2 stable) which owns a 20% stake, and the company ‘considerable debt reduction in recent years, which suggests adherence to prudent financial policies.
The stable outlook on the rating reflects Moody’s expectations that Bayan will continue to grow its production volumes and maintaining a financial profile appropriate for its Ba3 rating. An upgrade of the rating is unlikely over the next 12 – 18 months, given the miner’ current scale and lack of diversification.
Nonetheless, upward rating pressure could develop over the longer term if Bayan increases production meaningfully, or improves diversification in relation to geography or product while maintaining a strong credit profile.
Earlier, the management said, that this corporate action would have an impact on increasing the company’s consolidated assets by 52.13 percent to $1.75 billion, mainly obtained from an increase in cash and cash equivalents of a maximum of $600 million. In addition, the company’s consolidated liabilities also increased 126.90 percent to $1.07 billion.
To realize this corporate action, the company guarantees its subsidiaries, namely PT Dermaga Perkasapratama, PT Indonesia Pratama, PT Bara Tabang, PT Fajar Sakti Prima, PT Teguh Sinar Abadi, PT Firman Ketaun Perkasa, PT Wahana Baratama Mining, PT Perkasa Inakakerta, PT Muji Lines, PT Bayan Energi, PT Gunungbayan Pratamacoal, PT Metalindo Prosestama, and PT Brian Anjat Sentosa.
Until the third quarter of 2019, the company posted revenues of $1.14 billion, down 8.06 percent compared to the same period last year of $1.24 billion. While profit for the year attributable to the parent company also dropped 46 percent to $209.5 million from US $388 million.
In the middle of this year, Bayan Resources had previously signed a cooperation agreement with Bangladesh-China Power Company Limited related to coal supply worth $1 billion. The company will supply coal to the joint venture within the next 10 years. BCPCL is a joint venture of the North-West Power Generation Company Bangladesh Limited and the China National Machinery Import and Export Corporation.
Listed on the Indonesian Stock Exchange in 2008, Bayan is engaged in surface open cut mining of coal mines primarily located in East and South Kalimantan. It has a 90 percent interest in its largest producing asset at Tabang, which will contribute around 80% of its total production volume of around 32 million tons in 2019.
Bayan’ founder Dato’ Low Tuck Kwong is the largest shareholder with a 53.9 percent stake, Korea Electric Power Corporation owns 20 percent through its subsidiaries, and PT Sumber Suradaya Prima owns 10 percent. Bayan’ management and founders hold an 11.8 percent stake, and the balance is publicly owned.
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