S&P: Antam outlook revised to Negative; 'B+' rating affirmed

(Singapore, Sept. 27, 2012) -- Standard & Poor's Ratings Services said today that it had revised its outlook on Indonesia-based mining company PT Antam (Persero) Tbk. to negative from stable. At the same time, we affirmed the 'B+' long-term corporate credit rating on the company.

"We revised the outlook because we expect Antam's financial risk profile to weaken due to a higher-than-expected increase in the company's capital spending over the next 24 months," said Standard & Poor's credit analyst Xavier Jean. "We now estimate that the company's capital expenditure could reach Indonesian rupiah (IDR) 14 trillion in 2012-2013, compared with our earlier forecast of IDR7.8 trillion. We expect most of the capital expenditure to be debt-funded."

Antam is increasingly committed to its stated capital spending plan over the next two years, in our view. This is largely to mitigate a possible drop in profitability if the Indonesian government bans unprocessed nickel ore exports in 2014. Higher capital spending could strain the company's cash flows more than we had expected. Currently subdued nickel prices compound this risk. We forecast Antam's debt-to-EBITDA ratio at more than 4.5x in 2013, from about 1.2x in 2011, and its ratio of funds from operations (FFO) to debt at below 15%, from about 68% in 2011. This could lead to a weakening of the company's financial risk profile to "highly leveraged" from "aggressive," as our criteria define these terms.

A potential disposal of Antam shares owned by the Government of Indonesia (BB+/Positive/B; axBBB+/axA-2) will not affect our rating or outlook on the company. We consider Antam to be a government-related entity according to our criteria. However, we assess Antam as having "limited importance" and "limited link" to the government. This means that we do not factor in any exceptional government support in our 'b+' stand-alone credit profile on the company.

The rating on Antam reflects the company's high capital spending plans, its exposure to volatile nickel prices, the weak cost competitiveness of its ferronickel operations, and regulatory uncertainty. Antam's good quality mining assets, second quartile cost position among nickel ore producers, and adequate liquidity temper these weaknesses.

"The negative outlook reflects our expectation that the substantial debt-funded capital spending plan could weaken Antam's cash flows and increase its leverage over the next 12 months," said Mr. Jean.

We could lower the rating if Antam's financial risk profile weakens materially, such that its debt-to-EBITDA ratio is above 5x and FFO-to-total-debt ratio is below 15%. This could happen if the company's capital expenditure exceeds IDR5 billion in 2012 and in 2013 and average nickel prices are lower than $7.75 per pound.

We could revise the outlook to stable if Antam's capital spending is more gradual than we expect, such that its debt-to-EBITDA ratio stabilizes below 4.5x and its FFO-to-total-debt ratio is greater than 20%. (ends)