Fitch Ratings-Singapore/Jakarta-27 October 2014: Fitch Ratings has affirmed coal producer PT Adaro Indonesia’s (Adaro) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘BB+’. The Outlook is Stable. The agency has simultaneously withdrawn the ratings. Adaro has fully prepaid its USD800m senior unsecured notes due in 2019. Fitch will no longer provide ratings or analytical coverage for this issuer.
KEY RATING DRIVERS
Adaro’s ratings reflect the consolidated credit profile of its parent, PT Adaro Energy Tbk (AE), due to the strong linkages between the two entities. The affirmation of the ratings reflects our expectation that AE will maintain adequate through-the-cycle credit metrics despite a material weakening in coal prices. This is due to AE’s position as one of the world’s lowest-cost producers of thermal coal, its strong liquidity and its low capex requirements, which result in positive free cash generation even under low coal prices.
AE has largely completed resource acquisitions, and has deferred the development spending required for most of its greenfield coal assets acquired since 2011 due to low coal prices. AE’s EBITDA was USD510m in 1H14 (2013: USD859m) and its FFO net leverage was 1.8x (2013: 2.3x).
The company refinanced its bonds using low-cost amortising bank debt. Although such loans add to AE’s annual cash requirement to service debt amortisation, Fitch expects the requirement can be comfortably managed with operating cash generation and cash on hand. Furthermore, the amortising debt is better suited for the company as this reduces large refinancing requirements closer to the expiry of Adaro’s largest mining concession in 2022. The low-cost bank loans also substantially reduce its interest costs.
The ratings remain constrained owing to AE’s high reliance on a single mining concession and the uncertainty associated with mining regulations in Indonesia.
Source: Fitch Ratings