Bumi Resources on Friday had its bond ratings downgraded by Moody’s Investors Service, citing the coal miner’s ability to reduce debt as coal prices remain weak.
Shares of Bumi Resources fell even as a shareholder vote in London paved the way for the Bakrie Group to swap its stake in Bumi Resources from Bumi Plc .
Moody’s said in a statement on Friday that it downgraded the corporate family and senior secured bond ratings of Bumi Resources one notch to B2 from B1. The senior secured bonds are issued by Bumi Capital and Bumi Investment, wholly owned subsidiaries of Bumi Resources. The outlook is stable.
“The weakness in coal prices will continue to pressure the company’s operating margins and limit its ability to generate sufficient free cash flow to lower its leverage in a timely manner,” Simon Wong, a Moody’s vice president and senior analyst, said in a statement.
The company’s average selling price for coal will come under further pressure in 2013, as it will renegotiate its coal contracts based on the current lower prices, the rating agency said. Moody’s expects the price of Newcastle thermal coal to average around $90 to $95 per metric ton in 2013. It currently stands at $94 a ton.
Wong said the downgrade reflected its assessment that the likelihood of Bumi Resources cutting the ratio of its adjusted debt-to-earnings before interest, taxes, depreciation and amortization to less than 4.5 times in the next 12 to 18 months as low. Moody’s also expects the company’s adjusted debt-to-Ebitda ratio to remain at between five and six times until 2014.
The potential recovery of the amounts due from third parties, such as Recapital Asset Management and Bukit Mutiara, as well as a possible sale of its stakes in Fajar Bumi Sakti — one of its coal mining assets — will not be adequate to bring down its leverage to a level that is appropriate for the B1 rating, Moody’s said.
Bumi Resources on Friday dropped 1.1 percent to Rp 910, extending a two-day, 8.1 percent decline. By comparison, the main stock index gained 0.4 percent.
Moody’s said that while the uncertainties related to the ongoing shareholder disputes at Bumi Plc have eased with the now likely separation of Bumi Resources from Bumi Plc, corporate governance at Bumi Resources remained an issue.
Moody’s also says it is concerned about the company’s high level of debt and the liquidity risk at the holding company level, given the structural separation from the underlying coal assets that are largely responsible for the group’s cash flow.
Among other Bakrie-related shares, Berau Coal Energy, a unit of Bumi Resources, gained 12 percent to Rp 335. As part of the deal, Bumi Plc will get an 85 percent stake in Berau Coal. Borneo Lumbung Energy & Metal, a coal company controlled by Samin Tan — who owns half of the Bakrie Group’s stake in Bumi Plc — gained 1.9 percent to Rp 530, extending Thursday’s 3.6 percent gain. Bakrie & Brothers was unchanged at Rp 50 per share.