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Adaro Energy affects ratings of subsidiary Adaro Indonesia
The performance of PT Adaro Energy has positively affected the ratings of its subsidiary, PT Adaro Indonesia (AI), as evidenced in the latest affirmation by Fitch Ratings.
The New York- and London-based ratings agency has affirmed Adaro Indonesia’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at BB+ with a stable outlook.
Fitch also affirmed the company’s US$800 million senior unsecured notes due in 2019, guaranteed by its parent PT Adaro Energy, at BB+.
“Adaro Energy is one of the thermal coal suppliers with the largest reserves,” Asjaya Indosurya Securities analyst William Surya Wijaya said on Wednesday.
He added that Adaro Energy had been able to maintain their credit profile and, hence, liquidity at a relatively stable point.
As of September 2013, Adaro Energy reported that it had access to approximately $1 billion worth of cash, which would buffer the firm against cyclical downturns.
However, Adaro Energy saw revenues decline by 12 percent year-on-year to $2.4 billion as of September 2013, causing net income to tumble 47 percent annually to $183 million. The seaborne thermal coal producer said that weak global coal prices were behind the languid earnings.
Yet, Adaro Energy’s production volume rose by 14 percent to 38.67 metric tons, with sales volume going up by 13 percent to 39.11 metric tons.
“The ratings given are based on predictions that a company will perform better moving forward,” William added.
“They are also based on the expectation that the company can repay its debts,” he added.
As of September 2013, Adaro Energy’s total liabilities decreased 7 percent year-on-year to $3.5 billion.
Fitch pointed out that Adaro Energy’s performance had largely influenced the rating granted to Adaro Indonesia.
Adaro Energy, Fitch noted in its release, “enjoyed” the advantages of low production costs of about $35 per metric ton when excluding royalties in the first nine months of 2013 and a resultant earnings before interest, taxes, depreciation and amortization (EBITDA) of around $17 per metric ton.
Fitch noted that Adaro Indonesia accounted for approximately 75 percent of Adaro Energy’s consolidated EBITDA in 2013.
Fitch also pointed out that Adaro Energy possessed “strong liquidity” due to its $618 million cash holdings and $418 million of committed undrawn credit facilities as per September 2013.
“Its production costs place it among the lowest quartile of sea-borne thermal coal suppliers,” Fitch wrote. Fitch further added that Adaro Energy was able to defer company spending “until coal prices improve substantially”, considering the operational control the company possessed over its coal assets.
“Fitch expects a total of $300 million to $350 million investment spending on some of its power projects over the medium term, but this will not materially impact its credit rations,” Fitch wrote.
However, Fitch noted that Adaro Indonesia’s reliance on a single mining concession had constrained its ratings.
“Fitch believes that the thermal coal market is unlikely to see any meaningful recovery in the next 12 to 18 months, and is also vulnerable to regulatory risks in Indonesia and some of its export markets,” the ratings agency added.
Fitch expects Adaro Indonesia’s average selling price (ASP) to be around $57 per metric ton in 2014 from $58 per metric ton as of September 2013. Prices are forecast to increase thereafter by up to $3 per metric ton per annum.
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