Bangkok--2 Oct--Moody's
Moody's Investors Service has today assigned a provisional Ba1 senior unsecured bond rating to the proposed issuance by PT Adaro Indonesia ("Adaro") under the guarantee of parent PT Adaro Energy TbK ("Adaro Energy"). At the same time, Moody's has affirmed Adaro's Ba1 local currency corporate family rating. The outlook on all ratings is stable.
"Adaro's operating and financial profile has shown consistent improvement in the last few years which has been aided by increasing ASP's as well as efforts to improve efficiencies and reduce costs" says Laura Acres, a Moody's Vice President, adding "Such strengths have been manifest in Adaro's substantially improving credit metrics and liquidity profile".
Adaro's Ba1 rating reflects: 1) Adaro's status as one of the world's lowest-cost producers and exporters of coal, with a long concession life (to 2022); 2) the quality of its customer base, as represented by large utilities with excellent payment records; 3) its well established operations, with a record of consistent production growth and deleveraging; 4) ability to lock in customers, in terms of volume, for substantial proportions of forward production; and 5) strong financial profile.
At the same time, the rating recognizes key challenges such as a lack of diversification given Adaro's single site and product, as well as potential issues pertaining to the new Mining Law and emerging market risks arising from operating in Indonesia as captured by the country ceiling of Ba1/stable.
The stable outlook reflects our expectation that Adaro will maintain its operating and financial profile.
The possibility of upward pressure is limited given that Adaro is one of the most highly rated single commodity mining companies globally; furthermore, its revenue base remains relatively small and the company lacks production diversity compared with similarly rated global peers.
Adaro's financial metrics are strong for the rating level, therefore downward pressure is most likely to come about should Adaro experience material disruption to its operations, or industry fundamentals deteriorate to the extent that Adaro's ability to service its debt is compromised, Moody's considers the likelihood of this as low over the medium term, however, such trends could be evidenced by adjusted consolidated debt/EBITDA rising above 2.0x.
Other negative rating trends include: 1) event risk as a result of any adverse decision regarding the off-setting of VAT payments; 2) any change in laws and regulations, particularly on the mining concessions, that would affect the business; and 3) any abrupt change in financial or operational strategy and/or dividend policies.
The principal methodology used in rating Adaro was Moody's Global Mining Industry published in May 2009, and available on www.moodys.com in the in the Rating Methodologies sub-directory under the Research & Ratings tab.
Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.
The last rating action was taken on August 3, 2009, when Adaro's local currency corporate family rating was upgraded to Ba1/stable.
Adaro is one of the largest single site coal producers in the southern hemisphere and one of the world's largest sub-bituminous coal companies.
It exports approximately 77% of its products to Southeast Asia, the US and Europe, while the rest is for the domestic market. It is wholly owned by Adaro Energy which is listed on the Indonesia Stock Exchange.
Hong Kong
Laura Acres
Vice President - Senior Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077
Singapore
Tony Tsai
Senior Vice President
Corporate Finance Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308