Jun 22, 2010

S&P: Berau Energy liquidity is weak

Global rating agency Standard & Poor's Ratings Services said today that it has assigned B+ issue rating to the proposed senior secured notes to be issued by Berau Capital Resources Pte Ltd, a wholly owned subsidiary of Berau Energy, and guaranteed by Berau Energy and PT Berau Coal (Berau), Indonesian's fifth largest coal mining company.
Berau Capital Resources plans to issue around US$600 million of bond to refinance its debt. S & P also provides B+ for long-term corporate credit rating to Indonesia-based coal mining company PT Berau Coal Energy (Berau Energy). The outlook is stable.
Berau Energy holds a 90% stake in Berau. The rating on the notes is subject to our review of the final issuance documentation.
In S & P's view, Berau Energy's liquidity is weak. As at March 31, 2010, the company had unrestricted cash and equivalents of US$214.8 million, and additional restricted cash of US$75.0 million.
"We expect the company to generate funds from operations of about US$100 million for the year ending December 31, 2010, which is insufficient to cover the debt maturity of US$600 million at a downstream subsidiary and the intermediate parent."
According to S & P, the ratings on Berau Energy reflect the company's highly leveraged financial risk profile, its exposure to Indonesia's evolving regulatory framework and coal price volatility, and mineral concentration risk, said Standard & Poor's credit analyst Manuel Guerena, in a press release today.
"These weaknesses are tempered by the company's low cost profile, high contracted coal sales, established relationships with clients, and consistent production growth."
In addition to the proposed notes, Berau Energy is in the process of procuring a bank loan. The company expects to raise funds from both the proposed notes issuance and the bank loan.
"Following this, we anticipate Berau Energy's adjusted debt-to-EBITDA ratio to be about 5.0x for the year ending Dec. 31, 2010."
The rating on the proposed notes reflects the irrevocable and unconditional guarantee by Berau Energy and Berau.
The proposed notes rank pari passu with other debt, which primarily comprises a proposed bank loan. Gross proceeds from the notes will be mainly used to refinance debt.
Berau Energy is dependent on the proposed bank loan and the proposed bond issuance to meet its immediate debt and extend its debt repayment schedule.
The stable outlook reflects our expectation that Berau Energy's cash flow will be supported by the favorable outlook for coal prices in the next 12-18 months, and the company's ongoing efforts to increase coal production and maintain its margins. "We also expect the company to successfully refinance its near-term debt maturities."

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