PT Bumi Resources, Indonesia-based coal mining, has plan to issues bonds and pick two securities to underwrite the action.
Standard & Poor's Ratings Services assigned its BB long-term corporate credit rating to Bumi. The outlook is stable.
Standard & Poor's also assigned its BB rating to the proposed issue of guaranteed senior secured notes by Bumi Capital Pte., a wholly owned subsidiary of Bumi.
Bumi is the largest producer and exporter of thermal coal in Indonesia. In 2008, Bumi produced over 25% of the country's total coal. The corporate credit rating on Bumi is one notch higher than Indonesia's long-term foreign currency sovereign credit rating (BB-/Positive), because of Bumi's historically high exports (over 90%) primarily to highly-rated power plants in Asia and its financial and operational resilience.
The ratings on the proposed notes reflect the irrevocable and unconditional guarantee by Bumi. The notes rank pari passu with other debt which primarily comprises convertible bonds and a US$ 1.9 billion loan from the China Investment Corp.
The rating on the notes is subject to finalization of documentation. Proceeds from the proposed notes will be used for general corporate purposes and to bolster the company's financial flexibility.The issue rating is the same as Bumi's issuer credit rating of BB, as Standard & Poor's believes that the purely operational liabilities at Bumi's coal subsidiaries are unlikely to cause any structural subordination at Bumi, because of the company's strong mechanism to control cash flows.
The rating on Bumi reflects the company's exposure to regulatory risks. Bumi's coal mines are still exposed to Indonesia's evolving regulatory framework relating to taxation, contract mining and the environment. Although a New Mining Law has been passed in parliament, its relevance and applicability to Bumi are still unclear.
The company is also vulnerable to the general operating risks inherent to the coal-mining industry. "In the past, Bumi's operations have experienced disruptions due to various environmental factors such as heavy rainfall and mud flow," said Standard & Poor's credit analyst, Manuel Guerena.
The rating also incorporates high geographical single mineral risk and heavy customer concentration with the three largest customers accounting for about 36% of its sales in fiscal year ended Dec. 31, 2008.
Bumi's operating and financial performance is very susceptible to volatility in coal prices. Bumi's sizable high quality coal reserves, favorable infrastructure, high margins and exports mitigate some of its weaknesses.
"The stable outlook reflects our view that Bumi's steady cash flow will be supported by the improving outlook for coal prices, and the company's initiatives to improve its operating efficiency," said Mr. Guerena. The rating on Bumi could be lowered if the company's credit measures deteriorate, including debt to EBITDA consistently exceeding 3x, as a result of its significant debt-funded expansion program or declining operating performance.
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