Sept 26 -
-- Bumi PLC, a 29% shareholder, has initiated an investigation into potential financial and other irregularities at its Indonesian operations, especially in relation to Indonesian coal mining company Bumi Resources.
-- We believe the investigation could weaken Bumi Resources’ access to the capital markets and test its ability to refinance its short-term debt.
-- We are lowering our long-term corporate rating on Bumi Resources and the issue rating on its guaranteed senior secured notes to ‘B+’ from ‘BB-'. We are also lowering our long-term ASEAN regional scale rating on the company to ‘axBB-’ from ‘axBB’.
-- We are also placing the ratings on CreditWatch with negative implications, pending further clarity on the basis, coverage, and possible outcome of the shareholder’s investigation.
On Sept. 26, 2012, Standard & Poor’s Ratings Services lowered its long-term corporate credit rating on Indonesia-based coal mining company PT Bumi Resources Tbk. to ‘B+’ from ‘BB-'. At the same time, we lowered the issue rating on the company’s guaranteed senior unsecured notes to ‘B+’ from ‘BB-'. We also lowered our long-term ASEAN regional scale rating on Bumi Resources to ‘axBB-’ from ‘axBB’. We then placed all of the ratings on CreditWatch with negative implications.
We downgraded Bumi Resources following an announcement that a 29% shareholder in the company, Bumi PLC (not rated), is investigating potential financial and other irregularities at its Indonesian operations, especially in relation to Bumi Resources. In our view, the investigation could weaken Bumi Resources’ position in the capital markets, test its ability to refinance its debt maturities, and increase funding costs over next 12 months.
The investigation comes at a time of slower production growth over the next 12 months than we earlier expected and continued subdued coal prices that further constrain the company’s cash flows and weaken its debt-servicing ability and credit ratios. Bumi Resources will need to refinance more than US$400 million of debt maturities in 2013.
We placed the ratings on CreditWatch because of the lack of clarity regarding the scope and possible outcome of the investigation. Further rating downside is possible if the investigation were to divulge any financial irregularities that will: result in cash flow stress; cause regulatory or legal issues; affect the company’s “fair” business risk profile, as defined in our criteria; or weaken its liquidity position.
Resolution of the CreditWatch and the extent of any future rating action will depend on the timing, progress, and outcome of the investigation. In resolving the CreditWatch, we will also consider whether this event has a prolonged negative impact on the company’s future access to the capital markets for refinancing.
Related Criteria And Research
-- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
Downgraded; CreditWatch/Outlook Action
PT Bumi Resources Tbk.
Corporate Credit Rating B+/Watch Neg/-- BB-/Negative/--
ASEAN Rating Scale axBB-/Watch Neg/-- axBB/--/--
Bumi Capital Pte. Ltd.
Senior Secured B+/Watch Neg BB-
Bumi Investment Pte. Ltd.
Senior Secured B+/Watch Neg BB-