JAKARTA (TheInsiderStories) – Moody’s Investors Service has affirmed the Ba3 corporate family rating (CFR) of PT Indika Energy Tbk (IDX: INDY). It also affirmed the Ba3 ratings on the US$285 million backed senior secured notes due 2023 issued by Indo Energy Finance.
Moodys also affirmed 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. All notes are unconditionally and irrevocably guaranteed by Indika and rank pari passu. The outlook is stable.
“The rating affirmation reflects our expectation that, despite weakness in its credit metrics, Indika’s credit profile will be supported by its stable operations, strong liquidity, and adherence to prudent financial policies,” says Maisam Hasnain, a Moody’s Assistant Vice President and Analyst, in a statement on Tuesday (02/04).
Indika’s commitment to maintaining a strong balance sheet provides a cushion against its weakening credit metrics, the result in turn primarily of declining coal prices. The company had a large cash balance of around $611 million as of 30 September 2019, with no material near-term debt maturities until 2022.
Nevertheless, declining coal prices over the last 12 months have weakened Indika’s credit metrics, and have lowered earnings at its 91 percent owned mining subsidiary, PT Kideco Jaya Agung. Kideco’s reported EBITDA for the nine months ended September 2019
declined to $188 million from $430 million for the nine months in the preceding year. As a result, Indika’s adjusted leverage – as measured by adjusted debt/EBITDA – increased to 3.5x as of September 2019 from 2.4x in 2018.
Based on Moody’s medium-term price assumptions for Newcastle thermal coal of around $75 per ton, Moody’s estimates Indika’s adjusted leverage will rise further to around 3.8x over the next 12-18 months. However, a prolonged decline in coal prices will further weaken Indika’s leverage, thus eroding the limited headroom under its Ba3 rating.
The Ba3 CFR reflects Moody’s expectation that Kideco’s coal contract of work (CCoW) mining license, which expires in March 2023, will be extended on broadly similar terms. However, Moody’s believes that there remains a high degree of regulatory risk, given limited clarity from the Government of Indonesia (Baa2 stable) on the extension or conversion of such mining licenses.
Indika has sufficient liquidity to meet its cash needs for the next 12-18 months, and Moody’s expects Indika to continue to proactively refinance its debt maturities well ahead of its large $1.1 billion debt maturity wall between 2022 and 2024.
While Indika is likely to not meet a financial maintenance covenant on its bank loans in 2020, Moody’s expects the company will address this risk by either obtaining waivers or renegotiating its covenants. Indika’s holding company cash balance of $348 million is also considerably larger than the $201 million outstanding balance on these bank loans as of 30 September 2019.
Indika is an Indonesian integrated energy group listed on Indonesia’s Stock Exchange, with a market capitalization of around $360 million as of 03 February 2020. Its principal investment is a 91 percent stake in Kideco, one of Indonesia’s largest domestic coal producers.
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