JAKARTA (TheInsiderStories) – Moody’s Investors Service says that the twin challenges of low coal prices and a size-able bond maturity continue to challenge Indonesian mining-services contractor, PT Bukit Makmur Mandiri Utama (BUMA, Ba3 negative), although it should have sufficient liquidity through to December 2021.
The unit of miner, PT Delta Dunia Tbk (IDX: DOID), in the first half of 2020 implemented cost cuts and lower capital spending that, together with a US$68 million government tax refund, have helped boost its cash position to $150 million, almost three times the historical average of around $50 million.
Moody’s expects BUMA‘ cash balance as of June 30, 2020, along with projected operating cash flow over the next 18 months will be sufficient for the company to meet its scheduled debt repayments and projected capital spending through 2021, but with a thin buffer.
“However, the residual cash buffer as of Dec. 31, 2021 will be insufficient to repay BUMA’ $350 million bond maturing in February 2022, and we expect its credit quality will deteriorate if it fails to put together a firm refinancing plan in the coming months,” says Maisam Hasnain, an analyst from Moody’s.
She expects BUMA will seek to refinance the bond later this year, given that it obtained shareholder approval in July 2020 to issue a US Dollar bond of up to $750 million. However, new bond issuance could be difficult as market conditions for US Dollar high-yield bond issuances in Indonesia remain weak.
Additionally, the company shareholders have provided approval only for the issuance of a new bond with a maximum coupon of 10 percent, much lower than the current yield to maturity on its existing bond of around 17 percent.
BUMA‘ leverage will weaken this year, rising to 3.5x in 2020 from around 3.2x in 2019, following the loss of its third-largest customer. Leverage could weaken even further if coal prices remain low and coal miners reduce production this year.
The loss of its key customer also exposes BUMA to significant customer concentration risk, and Moody’s expects its remaining two largest customers, PT Berau Coal Tbk (IDX: BRAU) and PT Adaro Indonesia (Ba1 stable), will contribute 65 percent of consolidated revenue in 2021, up from 59 percent in 2019.
On July, Delta Dunia has announced to issue global bonds worth of $750 million to pay off the liability. The company owns 99.99 percent of BUMA shares and the rest by Glenn Timothy Sugita.
BUMA stated that the bonds would be listed on the Singapore Exchange Securities Trading Limited. The global debt is neither guaranteed by the company nor by property security rights to the company’s assets and will have a coupon of up to 10 percent which will be paid every six months.
Based on the financial statements as of Dec. 31, 2019, Delta Dunia‘ total equity was recorded at $280.57 million, so the transaction percentage of the company’ total equity was 267 percent.
“Because the total value of the transaction exceeds 50 percent of the company’s total equity, the transaction requires prior approval from the company’ shareholders,” management wrote today.
DOID plans to use the proceeds from the bond issuance after payment for all or part of the company’ obligations reaching $465.6 billion and the remainder for working capital. The total debt to be paid is a debt maturing in 2022 worth $350 million, the MUFG Bank Ltd. facility agreement, and a syndicated loan agreement worth $115.6 million.
The amount to be paid, whether in whole or in part, will depend on the amount of debt securities to be issued in the transaction plan that can be absorbed by the market. Currently, the contractor has total liabilities of $901.34 million, which is short-term liabilities of $257.34 million and long-term liabilities of $643.99 million.
Until the end of 2019, cash and cash equivalents of Delta Dunia amounted to $87.48 million, up 31.3 percent of total cash and cash equivalents in 2018 valued at $66.6 million. The company also did not have a standby investor and would request the approval of the issuance to shareholders at an extraordinary general meeting on July 9, 2020.
On the other hand, management considers the issuance of global bonds to be more profitable compared to funding through bank loans or syndication which generally requires a principal installment. In detail for BUMA‘ debt, it was stated that this subsidiary had a total debt of $709.92 million, with details of debt notes of $350 million, MUFG facilities and syndicated loan agreements of $115.62 million, long-term debt of $1.44 million, and finance leases $242.87 million.
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