Bangkok--17 Jun--Moody's Investors
Moody's Investors Service says in a new report that the rated Indonesian coal miners are well positioned for growth over the next year.
"We are optimistic about the sector, in light of steady growth in demand, low production costs, manageable capital expenditures, and solid liquidity," writes Laura Acres, a Moody's Vice President and author of the report, "although these positives are offset by the possibility of event risk, asset concentration, and emerging market considerations."
"The Indonesian coal mining companies emerged from the recent financial crisis relatively unscathed, because of strong financial profiles underpinned by low cost structures and increasing production, as well as strong balance sheet liquidity," she adds.
"Moreover, we believe that demand for Indonesian thermal coal from key consumers throughout Asia, especially India and China, will continue to be strong as the region continues to industrialize," says Acres.
Moody's also believes that the government will maintain its supportive stance towards the mining companies, given the industry's strategic importance to the economy as a source of both fuel and revenues.
Some of the larger mining companies have developed plans to gain greater control over their coal production supply chain; they also plan to nearly double production in the next several years.
"But we think that capital expenditure requirements will remain manageable," Acres goes on to say.
"As lower-priced contracts booked in H1 2009 roll off, we expect improving financial profiles to continue into the medium term, driven by stabilizing prices and increasing production, although improving financial metrics alone will be insufficient to propel rated firms into the ranks of investment-grade."
"This is because Indonesia's coal-mining companies lack geographic diversification," writes Acres, adding that "the range of commodities they produce is quite limited -- in fact, pretty much to thermal coal."
They also face further exposure to emerging market risk, primarily because of lingering uncertainty about regulatory issues in the country, as well as the political and economic risk as captured in Indonesia's Ba2/stable rating.
"Moreover, event risk may be a concern, depending on whether our rated issuers use their ample amounts of cash to benefit their bondholders (rather than their parent firms) or to make ill-advised purchases," Acres writes.
The report, "Indonesian Coal Miners Well Positioned for Growth," can be accessed at http://www.moodys.com.
Hong Kong
Laura Acres
VP - Senior Credit Officer
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Singapore
Philipp L. Lotter
Senior Vice President
Corporate Finance Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308