Singapore — Moody’s Investors Service says that the increase in debt following the announcement by PT ABM Investama Tbk (Ba3 stable) of a tap issuance under its existing 7.125% senior unsecured notes due 2022 is credit negative. However, its ratings remain unaffected.
The ratings outlook remains stable.
“We expect, pro forma for the possible increase in debt, ABM’s leverage
for the restricted group — as measured by adjusted debt/EBITDA — will
weaken to approximately 2.8-3.0x at the end of the 12 months ended
September 2017,” says Saranga Ranasinghe, a Moody’s Assistant Vice
President and Analyst.
“Despite the increase in debt, we expect ABM’s leverage to remain within
the threshold set for the current Ba3 rating,” adds Ranasinghe, who is
also Moody’s Lead Analyst for ABM Investama.
ABM’s rating is constrained by the execution risk over the next 12-18
months related to the extension of the reserve life at one its key mines.
We expect the company to utilize the proceeds from the tap issuance to
supplement funding for measures required to increase reserve life.
Operationally, ABM reported strong results for the nine months ended
September 2017. Revenue increased around 25% for the restricted group,
mostly driven by improved thermal coal prices and sales.
ABM’s Ba3 corporate family rating reflects its track record of maintaining
a strong performance through the coal price cycle, supported by its
integrated operations and focus on costs. The rating also takes into
consideration ABM’s moderate financial profile, supported by its prudent
capital management and resilient performance during the recent downturn
in coal prices.
At the same time, the rating also reflects its high exposure to the
cyclical thermal coal industry, small scale and customer concentration
risk, given that a few key contracts make up a substantial portion of
Upward rating pressure over the next 2 years is unlikely, given ABM’s
small scale compared to its peers, reliance on predominantly two mines
for coal production, and high degree of customer concentration.
Nevertheless, upward rating pressure could emerge over time if the company reduces its customer concentration, establishes long reserve lives at its key mines, reduces its reliance on the cyclical coal industry and improves financial flexibility, such that its financial leverage, as measured by total debt/EBITDA, falls below 2.5x (restricted group); and EBIT/interest (restricted group) rises above 3.0x on a sustained basis.
On the other hand, downward rating pressure could emerge as a result of:
(1) its failure to extend mine life and/or a reduction in expected coal
volumes; or (2) its failure to maintain or increase volumes in its mining
services business; or (3) any evidence of cash leakage to Sewatama.
Specific indicators Moody’s would look for include total debt/EBITDA
(restricted group) remaining above 3.5x; and EBIT/interest (restricted
group) falling below 2.0x.
ABM Investama Tbk (P.T.) (ABM is an integrated energy company with
investments in coal mining, mining services, engineering and logistics
and power generation.
The company listed on the Indonesian Stock Exchange in December 2011. PT
Tiara Margo Trakindo owns 23% of the company, while Valle Verde PTE LTD
holds another 55%.