JAKARTA (TheInsiderStories) – Moody’s Investors Service says that regulatory and economic developments in Indonesia (Baa2 stable) and China (A1 stable) will weigh on the earnings of Indonesian coal miners in 2019, while carbon transition poses a long-term risk to the credit quality of coal miners.

“Indonesian thermal coal sector is subject to regulatory, including the extension of certain mining licenses and a price cap on thermal coal sales to domestic utilities, which we expect will weigh on the credit quality of our rated thermal coal producers,” says Maisam Hasnain, a Moody’s Analyst in the latest report.

He continued, there is no clear guidance from the government on the extension of Coal Contract of Work mining licenses for miners such as PT Bumi Resources Tbk (B3 negative). Also, a price cap for thermal coal sales to domestic utilities will constrain miners’ earnings.

In addition, tightening environmental policies and slower economic growth in China will reduce that country’s overall demand for thermal coal, further weakening coal prices and the Indonesian coal producers’ earnings,”

“China is the largest importer of thermal coal globally. Lower Chinese thermal coal imports will weaken coal prices and hurt Indonesian coal producers’ earnings,” adds Hasnain.

Among its rated portfolio, Moody’s expects PT Bayan Resources Tbk (Ba3 stable) and PT Bukit Asam, a subsidiary of Indonesia PT Asahan Aluminium (Baa2 stable), to be well positioned to maintain their credit profiles amid these challenges, while PT ABM Investama Tbk (Ba3 negative) and PT Geo Energy Resources Limited ‘s (B2 negative) credit quality may weaken.

Finally, the continued long-term slowdown in coal demand in Asia also has the potential to weaken the credit quality of Indonesian coal miners.

Moody’s expects pricing pressure on thermal coal to persist due to the global transition toward renewables and away from coal power.

“However, if coal demand falls more quickly than in our baseline scenario, credit risk for Indonesian coal producers will rise materially,” adds Hasnain.

Funding options for Indonesian coal companies will also decline as investors and banks are under growing pressure to decarbonize their portfolios.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com

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