Bumi singled out in liquidity buffers

JAKARTA. Major Indonesian coal miners have moved to counter weakening selling prices and maintain their liquidity supplies, international agency Moody’s Investors Service says.

But the country’s largest thermal coal producer, PT Bumi Resources, remains a concern as it is suffering from a high financial burden.

In its report released on Tuesday, Moody’s said PT Berau Coal Energy, PT Indika Energy and PT Adaro Indonesia — a subsidiary of Jakarta-listed PT Adaro Energy — were among global coal producers with “strong cash positions, well spread out debt maturities and low production costs” and that would be able to survive current challenges of weakening coal prices.

Moody’s estimated that world coal prices would remain weak up to the next 18 months as growing demand in China and India would likely be helpless in offsetting coal oversupply as global coal miners with low production costs would keep pumping up their output to maximize cash flow.

Given the situation, however, Moody’s said Adaro and Indika had adequate liquidity for the next 12 to 18 months to stay away from defaults.

“Adaro faces a moderate but manageable cash drain,” Moody’s said.

It noted that Adaro held US$329 million in cash on hand as of June 30, and the figure is expected to decline by 10 to 20 percent in the next 18 months because cash flow from operations is expected to be insufficient to cover its debts.

But the company’s recent move to refinance its debt, its reduced capital expenditure (capex) and undrawn loan facilities worth $300 million, would boost its liquidity buffer, Moody’s said.

Indika also has a liquidity buffer, thanks to its $500 million bonds issued in January and its plan to make an early repayment to its senior notes amounting to $230 million in November, Moody’s said.

“[Indika’s] credit metrics should remain within the parameters of its B1 rating this year and next,” Moody’s said.

Indika senior vice president for corporate finance and investor relations Retina Rosabai has said the company would “save roughly $6 million per year” as its latest debt papers only bore a 6.375 percent interest rate compared to previous notes’ coupon rate of 9.75 percent.

Berau has the biggest liquidity buffer, according to Moody’s, with $512 million in cash on hand as of the end of June and no significant debt maturity until 2015. Berau’s capex reduction also contributed to the positive outlook.

Berau is also planning to refinance its $450 million guaranteed senior secured notes issued in 2010, which carry a 12.5 percent interest rate. Berau is seeking a lower rate of around 7 to 7.5 percent, finance director Scott Merrillees has said.

Moody’s said Berau’s main concern would be uncertainty over its strategic direction due to ongoing disputes between shareholders of its parent firm Bumi plc. London-listed Bumi plc, which 84.7 percent owns Berau, is in the spotlight following a planned separation with its Indonesian shareholder, the politically wired Bakrie family.

The latter is planning to take over another subsidiary of Bumi plc, Bumi Resources.

Moody’s enlists Bumi Resources as one of the world’s big coal producers with liquidity concerns.

“Despite its production size and higher coal quality, Bumi Resources […] will generate negative cash flow from operations, owing to its high interest expense burden of approximately $600 million per annum,” Moody’s said.

Bumi Resources had $90.6 million in cash on hand and $109.2 million in restricted cash as of the end of March, which would be insufficient to pay its debts. (Raras Cahyafitri)