Apr 12, 2011

Indika obtains US$180 million loan

PT Indika Energy Tbk (INDY) obtained US$180 million loan facility and used it to buy 51% shareholding in PT Mitrabahtera Segara Sejati Tbk (MBSS).
Indika on April 6 exercised an option to buy 51% shareholding or 892.51 million shares in MBSS at Rp1,630 per share or Rp1.45 trillion.
In a press statement from Moody's Investors Service obtained by Insider Stories today, the acquisition loans will fall due in April 2012. Indika has planned to pay them down with internal cash flow as well as the proceeds of the planned re-listing of PT Petrosea Tbk, a wholly owned subsidiary, in the second of 2011.
"Moody's recognizes that the company plans to further expand its existing businesses and at the same time seek acquisition opportunities to expand its coal value chain," said Simon Wong, a Moody's Vice President and Senior Analyst.
"Although this may present a high degree of event risk, Moody's takes comfort from management's conservative track record and reasoned acquisition strategy."
Moody's has today upgraded the corporate family and senior secured ratings on PT Indika Energy Tbk to B1 from B2. The outlook for the rating remains positive. Moody's has also assigned a provisional (P)B1 rating with a positive outlook to the proposed 7-year senior notes, to be issued by Indo Energy Finance B.V. and unconditionally guaranteed by Indika, PT Indika Inti Corpindo, the Tripatra Entities and Indo Energy Capital B.V. 
The provisional status of the notes will be removed upon completion of the issuance. "The upgrade reflects Indika's strong operating performance and improved financial metrics, driven primarily by dividends from Kideco, which have allowed the company to lower its leverage, as measured by adjusted debt/EBITDA, to 2.5x for 2010," said Simon Wong.
"Furthermore, the acquisition of MBSS has broadened Indika's coal value chain," said Wong, also lead analyst for Indika. While Indika's adjusted debt/EBITDA will rise to approximately 3.6x for 2011 as a result of its debt-funded acquisition of MBSS as well as the group's debt-funded capital expenditure programs, Moody's expects Indika to resume its de-leveraging in 2012 due to the full-year contribution from MBSS and the ongoing business expansion of Petrosea. 
MBSS, a coal transport & logistics services company, has short- to medium-term contracts covering  approximately 95% of its fleet of tug boats, barges, and floating cranes. Furthermore, the contract  terms include minimum tonnage and fuel-cost pass-through provisions, which adds
to the certainty of revenue and cash flow from operations.
However, Moody's is concerned about MBSS's high revenue concentration to its top three customers, which, although declining, still accounted for 75.7% of MBSS's 2010 revenue, as well as the large amount of upfront capex needed to meet the growth in both domestic coal production and demand for logistic support vessels. Furthermore, weather conditions could delay its loading and  unloading operations and the amount of tonnage it transports.
Notes exchange
Indika's proposed exchange of the US$250 million notes due 2012 with the new seven-year senior notes should space out its debt maturity profile and further strengthen its liquidity profile.
Indika's ratings are underpinned by the recurring cash dividend stream from its 46% stake in Kideco. Kideco is the third-largest coal producer in Indonesia and has maintained a very strong financial profile.
Indika's acquisition of Petrosea, a mining services company, has reduced its exposure to commodity cycles, given that most of its revenues are contractual and are premised on expectations of continued growth in Indonesian coal output.
However, the ratings also reflect Indika's high reliance on the dividend income from Kideco to service its debt, as well as the inherent volatility in that dividend flow due to coal price movements. Other concerns include the volatility of cash flow of Indika's EPC tender business, the execution risk of Indika's expansion plans, and the uncertainty in the regulatory environment for the coal mining industry in Indonesia.
The positive outlook reflects the expectation that Indika will resume its de-leveraging in 2012. It also reflects the broadened operating profile following the acquisition of Petrosea and MBSS, as well as the expectation that Indika will maintain its prudent and conservative approach to future acquisitions. 

Disclosure: No position at the stock mentioned above.

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