Photo: Indika Energy

JAKARTA (TheInsiderStories) – Publicly listed coal mining company PT Indika Energy Tbk (IDX: INDY) together with its wholly owned subsidiary, PT Indika Inti Corpindo completed the purchase transaction of a 45 per cent interest in PT Kideco Jaya Agung (Kideco) from South Korean Samtan Co., Ltd. (Samtan) and PT Muji Inti Utama (Muji).

After fulfillment of all terms and conditions set out in the Share Purchase Agreements (SPA) Indika now is the majority shareholder holding 91.0 per cent stake at Kideco, Indonesia third largest coal company under 1st generation CCOW with concession area in East Kalimantan.

“The completion of this transaction will further enhance synergies within Indika Energy’s subsidiaries and further strengthen our position in the energy business value chain,” said Arsjad Rasjid, President Director and Group CEO of Indika Energy in a press statement on Dec. 7.

With all the prerequisite conditions stipulated in the SPA and the Government’s approval, Indika has become the majority shareholder in Kideco with 91 per cent of the total shares while Samtan retains a 9 percent.

Pursuant to the SPA, a total payment of US$517.5 million has also been made in the transaction closing process. As is known, the acquisition of Kideco is an important step for Indika and is expected to create significant added value for the Indika Energy Group.

Moody’s upgrades Indika to Ba3

Moody’s Investors Service has upgraded the corporate family rating of Indika to Ba3 from B2 following the completion of its acquisition of an additional 45 per cent stake in Kideco.

At the same time, Moody’s has also upgraded the ratings on the $500 million backed senior secured notes due 2023 issued by Indo Energy Finance II B.V., the $265 million backed senior secured notes due 2022 issued by Indika Energy Capital II Pte. Ltd, and the $575 million backed senior secured notes due 2024 issued by Indika Energy Capital III Pte. Ltd. to Ba3 from B2.

All notes are unconditionally and irrevocably guaranteed by Indika and rank pari passu. The outlook on all ratings is stable.

On Dec. 8, Indika announced it had completed the Kideco acquisition after receiving all requisite approvals and also successfully raised $575 million of new notes at 5.875% due November 2024 to fund the acquisition.

The total purchase consideration, comprising an upfront payment of $517.5
million and contingent liability of $160 million, and the coupon on the
new $575 million notes are in line with Moody’s expectations.

“The upgrade of Indika’s ratings to Ba3 reflects the improvement in the
company’s operating profile as it now controls the steady cash flow generation at Kideco. It also incorporates the company’s stronger credit metrics in 2018-19 with consolidated leverage of around 3.4x-3.6x,” says Rachel Chua, a Moody’s Assistant Vice President and Analyst.

Kideco has a long reserve life of over 13 years, based on its projected 2017 production volume of 32 million tons. In the first six months of 2017, the mine generated $200 million of operating cash flow. On a pro-forma basis, Moody’s expects Kideco will account for over 70 per cent of Indika’s EBITDA.

Overall, Indika’s Ba3 ratings reflect its long dated debt maturity profile with no material maturity until 2022 and its good liquidity position. The ratings also take into consideration Indika’s ongoing commitment to conservative financial policies which balances its risk profile during periods of volatility in thermal coal prices.

“However, there remains a high degree of event risk, given the expiry of
Kideco’s coal contract of work (CCoW) in 2023. Negotiations for the extension of the CCoW can only commence in 2021 and while it is our current view that an extension on similar terms will be forthcoming, we remain cognizant of the regulatory risk and the impact on Indika’s credit profile and ratings should that renewal not materialize in a timely fashion,” adds Chua, who is also Moody’s lead analyst for Indika.

The ratings outlook is stable, reflecting Moody’s expectations that operations at Kideco will continue without disruptions through the management and ownership transition and that Indika will continue to execute its business strategy as planned over the next 12-18 months.

A further near-term upgrade of the ratings is unlikely. Nevertheless, upward momentum in the ratings could develop over time if Indika is successful in extending the Kideco CCoW beyond its 2024 bond maturity with no material changes to existing terms while demonstrating a sustained improvement in its financial profile.

Based on the company announcement, increasing operating activity of subsidiaries and rising coal prices continue to boost Indika’s performance. In the third quarter (Q3) of 2017, Indika booked revenues of $694.7 million, an increase of more than 22 per cent compared to $567.7 million in the same period last year.

The main factors of increasing revenue are from Tripatra‘s revenue which increased by 22.6 per cent as the contribution of engineering, procurement and construction (EPC) work in several ongoing projects. In addition, PT Petrosea Tbk‘s revenue also rose 21.8 per cent thanks to the growing mining contract business.

As a result, the company posted profit of $81.4 million compared to loss of $20.6 million in Q3 2016. The coal mining is back in the black, after being in the red throughout 2016.

Twenty-seven percent of the revenue came from coal trading, 31.6 percent from its oil and gas engineering, procurement and construction subsidiary Tripatra, 26.3 percent from publicly listed miner Petrosea, and 7 percent from coal shipping company PT Mitrabahtera Segara Sejati Tbk (IDX: MBSS).

Written by Linda Silaen, Email: linda.silaen@theinsiderstories.com

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