Moody's Assigns Ba3 and Fitch BB- to PT Bukit Makmur Mandiri Utama's US Dollar Notes - Photo by the Company

JAKARTA (TheInsiderStories) – Moody’s Investors Service has assigned a Ba3 rating to the miner, PT Bukit Makmur Mandiri Utama (BUMA) proposed US Dollar senior secured notes with rating outlook is negative. At the same day, Fitch Ratings put a BB-rating to the notes issues by the unit of publicly listed firm, PT Delta Dunia Makmur Tbk (IDX: DOID).

As reported, the company will issue global bonds worth of US$750 million to fully repay its outstanding bank loans, and use the remaining proceeds to redeem a portion of its outstanding US dollar notes. The global debt is neither guaranteed by the issuer nor by property security rights to its assets and will have a coupon of up to 10 percent which will be paid every six months.

According to Fitch, the notes are rated at the same level as BUMA‘ Issuer Default Rating, as they constitute its direct, un-subordinated and unsecured obligations. The miner’ rating reflects its position as Indonesia’ second-largest mining contractor, with a market share of about 15 percent and a satisfactory operational record with customers.

The rating also reflects the concentration risk the company faces, with about 80 percent of its volume coming from only three counter-parties, and the highly cyclical nature of the domestic coal contracting industry. Fitch expects BUMA’ EBITDA to improve over than $220 million in 2021, from about $160 million in 2020  and $267 million in 2019, supported by volume growth, better prices in line with our coal-price assumptions and cost optimization in 2020.

About 70 percent of BUMA‘ coal-mining contracts are linked to coal prices and are affected by coal-price movements. The agency estimate that BUMA’ costs fell in 2020, after peaking in 2019, after the company optimized its capacity to match a lower volume base and improved operational efficiencies.

The company let go of more than 2,000 employees in 2020, with its employee costs falling to $95 million in the first nine months of 2020 from a year ago$104 million, included one-time costs of $D7 million. Fitch thinks BUMA will increasingly rely on winning new customers in the next few years to maintain earnings.

Its contract with coal producer PT Berau Coal, which accounts for about half of its revenue, ends in 2025, when the mine reserves will be depleted. Fitch believes BUMA’ strong reputation and 20-plus years of experience will help secure new business and manage operational execution risk of new business.

The mining firm also extended its contract with a subsidiary of PT Bayan Resources Tbk (IDX: BYAN/BB-) in 2021, which will raise overburden volume by around 650 million bank cubic meters until 2031. This should offset the volume lost from a contract with PT Kideco Jaya Agung that ended in 2020.

BUMA says the shareholding at Northstar Tambang Persada Ltd., (NPT) which effectively holds 37.9 percent of the company, is likely to change from the consortium of large international funds to the current CEO and another individual over the next 12 months. The miner plans a consent solicitation prior to the two individual shareholders increasing their combined stake to over 50 percent in the NPT.

According to Maisam Hasnain from Moody’s, the Indonesian mining contractor had $337 million of US dollar notes and $57 million outstanding of bank loans as of 31 December 2020. Moody’s estimates the cash balance as of end 2020 was around $100 million.

In January, Souls Humanity Pte. Ltd., a private company controlled by Ashish Gupta and Ronald Sutardja (BUMA’ president director), acquired an effective 16.7 percent stake in BUMA from an existing shareholder consortium comprising Northstar Equity Partners, TPG Capital, GIC Pte. Ltd. and China Investment Corporation.

There is also an option for Souls Humanity to purchase the remaining stake held by the consortium, which would take its effective shareholding in BUMA to around 37.9 percent, making the company largest effective shareholder. As a result, some uncertainty remains regarding the ultimate ownership of BUMA, which gives rise to governance risks.

To that end, BUMA’ ratings would likely be downgraded if the changes in its effective shareholding result in liquidity pressure, delays in its refinancing plans or causes a shift from its current financial policies, which include prioritizing positive free cash flow generation and limited shareholder returns.

“The negative outlook reflects the company’ size-able near-term refinancing risk associated with its maturing bank loans and notes, uncertainties around its ownership composition and future financial policies, and execution risk regarding the company’s growth plans,” adds by Hasnain.

BUMA is 100 percent owned by Delta Dunia Makmur, an  investment holding company listed on the Indonesia Stock Exchange, which, in turn, is 38 percent owned by an international consortium through Northstar Tambang Persada, comprising Northstar Equity Partners, TPG Capital, GIC Pte. Ltd., China Investment Corporation, and Souls Humanity Pte. Ltd. The remaining 62 percent owned by public.

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