Moody's - Weak coal prices and USD bond maturity weigh on BUMA’s credit quality
Tuesday, September 1 2020 - 02:05 PM WIB
(31 August 2020)--Moody's Investors Service says in a new report that the twin challenges of low coal prices and a sizeable bond maturity continue to challenge Indonesian mining-services contractor Bukit Makmur Mandiri Utama (P.T.) (BUMA, Ba3 negative), although it should have sufficient liquidity through to December 2021.
BUMA in the first half of 2020 implemented cost cuts and lower capital spending that, together with a $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's cash balance as of 30 June 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 31 December 2021 will be insufficient to repay BUMA's $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, a Moody's Associate Vice President and Analyst.
Moody's expects BUMA will seek to refinance the bond later this year, given that it obtained shareholder approval in July 2020 to issue a USD bond of up to $750 million. However, new bond issuance could be difficult as market conditions for USD high-yield bond issuances in Indonesia remain weak. Additionally, BUMA's shareholders have provided approval only for the issuance of a new bond with a maximum coupon of 10%, much lower than the current yield to maturity on its existing bond of around 17%.
BUMA's 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 and Adaro Indonesia (P.T.) (Ba1 stable), will contribute 65% of consolidated revenue in 2021, up from 59% in 2019. (ends)