Moody's reviews ABM Investama's ratings for downgrade

(Singapore, June 17, 2021) -- Moody's Investors Service has placed ABM Investama Tbk (P.T.)'s ratings on review for downgrade. This includes the company's B1 corporate family rating (CFR) and the B1 rating on its $350 million senior unsecured notes due in August 2022. At the same time, Moody's has changed the outlook to ratings under review from negative.

"The ratings review reflects the likelihood of a downgrade if the company fails to refinance its $350 million notes 12 months ahead of its scheduled maturity on 1 August 2022," says Maisam Hasnain, a Moody's Assistant Vice President and Analyst.

"While we expect the company will seek to issue new US dollar notes to refinance its existing notes, the planned issuance is still subject to market conditions and investor appetite. Should the planned issuance fall through, we believe the company's concrete back-up funding options to address its large notes maturity will be limited in the near term," adds Hasnain, who is also Moody's lead analyst for ABM.

The ratings review will focus on ABM's ability to alleviate near-term refinancing risk with its planned US dollar notes issuance, and any countermeasures including back-up funding plans should the notes refinancing not proceed in the near term.

RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's expects ABM will seek to issue new US dollar notes in the coming weeks to refinance its $350 million notes due on 1 August 2022. The company had obtained shareholder approval via an extraordinary general meeting for shareholders in May to issue up to $400 million in US dollar notes with a maximum interest rate of 9.5%.

While strong earnings amid rising coal prices and lower yields on its existing notes should aid the proposed notes issuance, the transaction remains exposed to capital market uncertainty that is outside of the company's control. In the event of an unforeseen delay in its issuance plans, alternative fundraising plans could take time and further elevate near-term refinancing risk.

Today's rating action is driven primarily by elevated refinancing risk. Moody's expects ABM's earnings and cash flow to improve at its coal mining and mining services subsidiaries over the next 12 months, amid increased production volumes and higher coal prices.

Moody's estimates ABM's adjusted leverage -- as measured by adjusted debt to EBITDA -- to improve to 2.0x-2.5x in 2021 from around 3.2x in 2020. Absent material refinancing risk, such low leverage levels would be supportive of ABM's B1 ratings.

ABM's liquidity is weak, as its internal cash balance of around $109 million as of December 2020 and projected cash from operations will be insufficient to redeem its $350 million notes.

In recent months, ABM has signed two $50 million working capital facilities, which could help meet a temporary liquidity shortfall but would not alleviate refinancing risk, as the drawn-down portion of the facilities will be due in 12 months.

Given today's rating action, an upgrade is unlikely over the coming 12 months. However, Moody's could confirm the ratings if ABM fully addresses its US dollar notes maturity while maintaining enough internal cash sources to meet its cash needs over the next 12-18 months.

Moody's could downgrade the rating by at least two notches if ABM is unable to raise sufficient funds with its proposed US dollar notes to eliminate refinancing risk associated with its existing notes at least 12 months ahead of its scheduled maturity.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

ABM's ESG Credit Impact Score is highly negative (CIS-4), reflecting the company's very high exposure to environmental risks and high exposure to social risks stemming from its operations within the thermal coal mining sector, and high exposure to governance risks stemming from its inability in recent years to effectively execute on its growth plan.

The company's exposure to environmental risk is very highly negative (E-5 issuer profile score), driven by very high carbon transition risks associated with thermal coal; thermal coal mining and coal mining services will continue to generate a majority of ABM's revenue over the next few years. While coal demand in Asia remains stronger than in other regions, Asian coal miners are increasingly exposed to material credit implications, including reduced access to funding. In addition, policies favoring renewables, the declining costs of renewables and the development of disruptive technologies will increase the long-term risk for coal miners.

ABM's exposure to social risk is highly negative (S-4 issuer profile score), driven primarily by its coal mining operations' high exposure to human capital, health and safety, responsible production and demographic and societal trends. Although the company had on occasion received complaints around its coal mining operations related to environmental management in 2020, these have reportedly been resolved and have not materially impact its operations. ABM has also implemented processes to ensure occupational safety and conducts safety training and health checks for its employees. The company also engages with and supports the local communities where its mines are located.

ABM's exposure to governance risk is highly negative (G-4 issuer profile score), reflecting its inability thus far to effectively execute on its growth plans, and its increased reliance on debt-funded acquisitions to replace depleting coal reserves at a key mine.

The principal methodology used in these ratings was Mining published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1089739. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Listed on the Indonesian Stock Exchange since 2011, ABM Investama Tbk (P.T.) is an integrated energy company with investments in coal mining, mining services, engineering and logistics, and power generation.

The Hamami family controls 79% of ABM through PT Tiara Marga Trakindo (23%) and Valle Verde PTE LTD (56%). The remaining shares are held by the public. (ends)