JAKARTA (TheInsiderStories) – Moody’s Investors Service has affirmed the Ba3 corporate family rating (CFR) to Indonesian miner, PT Indika Energy Tbk (IDX: INDY), said the agency on Sunday (10/11). The agency also give same rating to the US$285 million backed senior secured notes due 2023 issued by Indo Energy Finance II B.V.
Then, to $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. At the same time, Moody’s has assigned a first-time Ba3 rating to the backed senior secured notes to be issued by Indika Energy Capital IV Pte. Ltd.
The proceeds from the notes will be primarily used to refinance existing debt of the company. The notes are unconditionally and irrevocably guaranteed by Indika and will rank pari passu with its outstanding US dollar notes. The outlook remains negative.
“The affirmation of Indika’s Ba3 ratings reflect its diversified operations, long operating track record, solid liquidity, and continued adherence to prudent financial policies — as shown by its planned US dollar notes issuance to proactively refinance its debt maturities ahead of schedule,” says Maisam Hasnain from Moody’s
He expects, proceeds from Indika‘ proposed US dollar notes issuance, which form part of its $650 million debt raising plans announced in September, will be used primarily to refinance the majority of its US Dollar notes coming due in 2022 – 2023. Part of the proceeds will also be used to invest in non-coal related businesses.
Upon completion of its planned refinancing, which Moody’s views as credit positive, Indika will not have any material debt maturities until 2024. As a result, the miner’ strong liquidity and minimal near-term refinancing risk afford it time to improve its weak credit metrics amid challenging business conditions, including low thermal coal prices.
Based on its medium-term price assumptions for Newcastle thermal coal of $65 per ton, Moody’s estimates Indika‘ adjusted leverage — as measured by adjusted debt/EBITDA – will remain elevated at around 4.3x as of Dec. 31, 2021, up from 3.5x in December 2019, and slightly above the downgrade trigger of 4.0x.
However, in light of slowing economic growth, the downside risk to the issuer’ credit metrics worsening beyond Moody’s current expectations is elevated, particularly if coal prices remain low for a prolonged period. In order to support earnings, the company has taken steps to reduce operating cash costs at its 91 percent-owned coal mining subsidiary, PT Kideco Jaya Agung, to $32.3 per ton in 1H 2020 from $35.6 per ton in 1H 2019.
Indika’ contract mining subsidiary PT Petrosea Tbk (IDX: PTRO) and engineering subsidiary PT Tripatra Multi Energi, are also seeking new contracts to boost their contract order books which have been declining in recent years, although near-term contract wins could be challenging given the weak macroeconomic environment. Moody’s expects Indika will maintain its good liquidity, as its large consolidated cash balance and projected operating cash flows will be sufficient to meet its cash needs over the next 12-18 months.
The agency also expects Indika’ planned investments, as part of its strategy to diversify earnings away from thermal coal, will not materially weaken its liquidity. The rater hope the miner to obtain additional covenant relaxations or waivers on its two bank loan facilities.
In June, Indika obtained temporary covenant relaxations on these facilities, which allowed for its leverage ratio to be calculated as net debt/EBITDA not exceeding 3.75x until December 2020 on one loan and until March 2021 on the other. Absent a material near-term earnings improvement, a covenant breach would likely occur once the covenant ratio reverts to the original gross debt/EBITDA calculation beyond December 2020 and March 2021, respectively.
The coal producer is an Indonesian integrated energy group listed on Indonesia’ Stock Exchange, with a market capitalization of around Rp4.8 trillion ($326.53 million) as of Oct. 9. Its principal investment, Kideco, one of Indonesia’ largest domestic coal producers.
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