PT Indonesia Asahan Aluminium, a state-owned miner, looking fresh funds from global bond market - Photo by Industry Ministry

JAKARTA (TheInsiderStories) PT Indonesia Asahan Aluminium (MIND ID), a state-owned miner, looking fresh funds from global bond market. The proposed senior notes get Baa2 with outlook negative from Moody’s Investors Service.

The proceeds from the bond issuances will use to acquire 20 percent shares of other mining companies, PT Vale Indonesia Tbk (IDX: INCO), and refinance outstanding indebtedness of the group. Earlier, CEO of MIND ID, Orias Petrus Moedak, said the company needs around US$500 million for the acquisition plans.

According to Moody’s, the Baa2 rating on the proposed notes is in line with the MIND ID‘ issuer rating and the agency rating on the company’ existing senior unsecured bonds.

“The proposed bond issuance will fund its planned acquisition of a  20 – 25 percent stake in Vale Indonesia, refinance debt at Inalum and its  subsidiaries and lengthen its debt maturity profile,” says Nidhi Dhruv, an analyst from Moody’s.

Still, its expects the company with “nickname” Inalum’ weaker financial performance amid weak commodity prices, coupled with the proposed debt-funded acquisition of a stake in INCO, will drive consolidated debt levels to around $6.5 billion, and gross adjusted leverage to 8.0x in 2020 from 6.2x in 2019.

Moody’s expects leverage to remain elevated at 8.0x – 8.5x through 2022, until PT Freeport Indonesia (PTFI) starts paying meaningful dividends which will improve the group’ consolidated EBITDA.

“We do not expect any reduction in the group’s absolute debt levels through 2022,” he noted.

Inalum owns 51.2 percent (beneficial equity limited to 41.2 percent) of PTFI, which operates the world’ second largest copper mine and largest gold mine at Grasberg, West Papua. The development of the underground mine is progressing as per plan, although Moody’s expects PTFI to start contributing material dividends only from 2022 – 2023.

“Although debt levels will rise at the holding company level, the additional interest expense can be serviced with dividends upstreamed primarily from its 66 percent-owned coal subsidiary, PT Bukit Asam Tbk (IDX: PTBA),” adds Dhruv.

Moody’s expects Bukit Asam, will account for over 90 percent of dividends Inalum receives from its subsidiaries. The other subsidiaries. PT Aneka Tambang Tbk (IDX: ANTM) and PT Timah Tbk (IDX: TINS), which are also 65 percent-owned, are relatively small, financially weaker and unlikely to upstream a meaningful amount of dividends.

Moody’s expects support from the government, if required, will flow to MIND ID directly as opposed to the operating subsidiaries. The miner’ liquidity is weak, and its cash sources will not be sufficient to meet capital expenditure requirements across the group and debt maturities of $1.0 billion at the holding company over the next 12 – 18 months.

Nevertheless, refinancing risk is low given the company’s government ownership and access to the bank and bond markets. As such, Moody’s expects Inalum to refinance in a timely manner.

MIND ID is the government-appointed holding company for mining state-owned entities. It is responsible for managing the country’s mineral reserves and developing Indonesia’ downstream industry. The government also appoints board-level staff at the firm and plays a key role in Inalum’ budget planning, investments and financing decisions.

MIND ID was established in 1976 and is Indonesia’s only producer of aluminium ingot. Inalum is also a miner and processor of coal, gold, tin, nickel, and bauxite, with its operations also including aluminum smelting and production.

In 2017, Inalum was appointed by the government as the holding company for the state’ mining assets, and has transferred its equity interests in Aneka Tambang, Bukit Asam, Timah and PTFI to the company. The miner is 100 percent owned by the government through the ministry of state own enterprises.

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