Berau to raise $450m from bond sales

JAKARTA. Berau Coal Energy (Berau), a major coal producer, is set to issue US$450 million in bonds to repay the debt of its Singaporean-listed subsidiary that is due next year.

According to a prospectus published on Tuesday, Berau — a subsidiary of London-listed Asia Resource Minerals plc — will seek approval for the issuance for the US dollar dominated bonds from its shareholders during an extraordinary meeting to be held in Jakarta on Wednesday.

Proceeds from the bond issuance will be used to refinance previous bonds, issued by its subsidiary Berau Capital Resources II Pte. Ltd. back in 2010 and due to mature next year.

“The bonds will be offered to limited foreign investors outside Indonesian territory, and will be listed on [Singapore’s stock exchange SGX-ST],” the prospectus read.

The new bonds will mature in five years and will be offered with a maximum coupon rate of 12 percent, the prospectus reads.

Berau has offered its own assets and assets of its subsidiaries as collateral, which stand at more than 50 percent of its total equity as of December 2013.

Berau’s shares, listed under the code BRAU on the Indonesia Stock Exchange (IDX), rose 5 percent to close at Rp 103 on Tuesday from Rp 98 the previous day, following the bond announcement.

Ratings agency Moody’s Investors Service, in a statement published late last month, announced that it had assigned a provisional (P)B1 rating for the planned bonds.

“This proposed refinancing of Berau’s maturing 2015 notes is in line with our expectations underpinning the affirmation of Berau’s B1 CFR last month. The successful execution of the refinancing will sustain Berau’s liquidity profile by extending its maturity profile such that its next material maturity is in 2017,” said Brian Grieser, a Moody’s vice president and senior analyst.

Berau’s B1 rating and negative outlook, Moody’s said, reflect the continued pressure on its credit metrics in a challenging operating environment where thermal coal prices have been persistently weak. Moody’s estimates that coal prices will remain under pressure over the next 12 months.

“The rating also accommodates our expectation that low coal prices will drive Berau’s financial leverage higher in 2014, towards 4.5x from 3.8x in March 2014. We expect management to continue implementing cost reduction measures and preserve cash in 2014-2015,” Grieser continued.

Berau is struggling to manage its liquidity as the global coal outlook remains uncertain.

The coal miner — whose parent companies recently split from Bakrie Group — reported $10.18 million in net losses in the first three months of the year, leading to worries over the company’s ability to pay its debts.

Besides the $450 million bonds, Berau also has $500 million guaranteed senior secured notes due to mature in 2017.

The company aims at securing $1.4 million in revenue this year, unchanged from last year. To make up potential losses from the plunging prices, the company hopes to produce 26 million tons of coal this year, up from 23 million last year, and maintain its stripping ratio to reduce costs. The target is pending approval from the government.