Sep 4, 2011

No impact on Adaro from coal acquisition

Moody's Investors Service sees no immediate impact on PT Adaro Indonesia's Ba1 corporate and senior unsecured bond ratings from PT Alam Tri Abadi's acquisition of a 75% stake in PT Mustika Indah Permai (MIP) from Elite Rich Investment Limited for US$225.5 million. 
Adaro Indonesia, is a wholly owned subsidiary of Alam Tri Abadi, which is in turn wholly owned by Adaro Energy Tbk, the ultimate parent. The outlook of the ratings remains stable. 
"The acquisition has minimal impact on Adaro Indonesia's credit metrics as it is expected to be predominately funded by Adaro Energy's cash on hand. But it does highlight Adaro Energy's strategy to pursues its growth and diversification through an expanding portfolio of greenfield projects," said Simon Wong, a Moody's Vice President and Lead Analyst for Adaro Indonesia. 
"Moody's further expects Adaro Energy to maintain a prudent approach in selecting potential investments, considering its track record of conservative management and low tolerance for risk," added Wong. 
Adaro Energy had US$607.9 million of consolidated cash and cash equivalents as at 30 June 2011, of which Adaro Indonesia held US$334 million. 
MIP, a coal mining company developing a greenfield coal project in South Sumatra, and Adaro Energy's other existing greenfield projects, such as the IndoMet Coal project, are expected to provide greater geographical and product diversification for the group in the medium to long term. 
However, Moody's notes that such projects will require substantial upfront investment and lead time to bring to production, although development risk is partly mitigated by Adaro Energy's proven track record in greenfield development. 
And while future operating cash flows from the greenfield projects will not be directly accessible by the lenders of Adaro Indonesia, such investments are expected to be captured under Adaro Energy's guarantee to Adaro Indonesia's loan and bond creditors. 
Adaro Indonesia 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 76% 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, an integrated energy group, listed on the Indonesia Stock Exchange. PT Mustika Indah Permai holds a mining permit, known in Indonesian as an IUP, which was granted in April 2010 for a period of 20 years. 
The project covers an area of approximately 2,000 hectares. Incremental technical work is required to determine the amount of coal resources and reserves in the concession.

Disclosure: No position at the stock mentioned above.

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