Prima Dig issue bonds

Fitch Ratings has today assigned a BB- Long-term foreign currency Issuer Default Rating (IDR) and a AA-(idn) National Long-term rating to Indonesia based coal mining contractor, PT Bukit Makmur Mandiri Utama (BUMA). The Outlook on the ratings is Stable.
At the same time, Fitch has assigned an expected rating of 'BB-' to the proposed senior secured notes to be issued by Prime Dig Pte Ltd, a fully-owned subsidiary of BUMA, and guaranteed by BUMA.
BUMA expects to raise up to US$600 million of debt; the notes offering is one of various options being considered by the company. The final rating is contingent upon receipt of documents conforming to information already received and a review of BUMA's capital structure following the conclusion of the transaction.
BUMA's ratings are supported by its established position as the second-largest coal mining contractor in Indonesia with a market share of 19% and its proven ability to win contracts from new and existing customers, which include some of Indonesia's largest and most profitable coal mining companies. BUMA's bargaining power with its customers appears good, as indicated by the significant rate increases it negotiated in 2008. This is mostly due to the critical nature of its services to its customers and its strong market position.
The company's large contract backlog (over 7x its 2008 revenue based on current volume guidance given by customers) provides good earnings visibility for the next five to seven years. In addition, the industry's growth prospects are good due to the increasing demand for thermal coal from Indonesia and a number of Asian countries.
BUMA's revenues are not directly exposed to the fluctuating coal prices as the bulk of its revenues is linked to the volume of overburden it removes. Some of BUMA's input costs are also volatile, although the largest component - fuel costs - is typically passed through to customers. Also, as most of BUMA's operating revenues and expenses are US$-denominated or linked, it is shielded from exchange rate risks arising from borrowing in US$.
While BUMA's revenues are not directly exposed to coal prices, a sustained downturn in prices may lead to fewer new mines being developed by coalminers, and hence, dimmer growth prospects for BUMA. Mining companies also typically adjust strip ratios in periods of low prices, which lower the amount of overburden removed. Additionally, lower coal prices may weaken the credit quality of BUMA's customers. These factors constrain BUMA's ratings, as does the capital intensity of BUMA's operations. BUMA needs to incur constant capital expenditure to grow its business, although Fitch acknowledges that the capex is scalable.
Of the total debt proceeds, US$240million will be on-lent to BUMA's prospective holding company, PT Delta Dunia Property Tbk (Delta), to repay indebtedness incurred in connection with the acquisition of BUMA and a further US$310million will be used to refinance existing debt of BUMA. This will increase the company's financial leverage (as measured by adjusted debt net of cash to EBITDAR) to over 2.5x in 2009 from 1.75x in 2008. However, Fitch expects BUMA to generate positive free cash flows, allowing it to deleverage beyond 2009. The proposed terms of the USD notes do not allow any cash returns to shareholders until the notes are fully repaid. Notwithstanding the higher indebtedness, Fitch expects BUMA to maintain strong interest coverage, which underpins the Stable Outlook on the ratings.
A negative rating action may arise if the leverage of BUMA or Delta is sustained above 2.5x. In addition, any failure to retain major customers, grow volumes and/or maintain market share could also result in a negative rating action.
BUMA reported revenues of US$693million and EBITDA of US$199 million in 2008. A group of private equity investors is acquiring BUMA via a reverse merger with Delta. BUMA's founder, Johan Lensa, will remain as the President Commissioner of BUMA for at least two years and its key management will also be retained after this transaction.